What is Extension of Time in Construction Contracts (EOT)?

January 20th, 2022

What is Extension of Time in Construction Contracts?

Before we understand what is ‘Extension of Time in Construction Contracts’, we need to understand what is ‘Time’ for a project.

Every project is a time-bound event. The ‘time period’ for a project is mentioned in the contract (stipulated by the Employer), within which the project is to be completed. It may vary up to any extent, even years, depending on the type and volume of the project.

If the project is not completed within the prescribed time period of the project, then ‘Extension of Time in Construction Contracts’ (abbreviated popularly as EOT is required to complete the balance work.

Illustration of EOT (Extension of Time in Construction Contracts)

Let us consider the case of a project whose time period is 24 months as per the contract.

The project is delayed before or / and after commencement of work and not completed within the timeframe of 24 months.

The client and contractor jointly agrees a revised timeline to complete the balance work of the project. The client awards an Extension of Time to the contractor.

The revised timeline is called the ‘Extended timeline’.

Why Projects are Delayed?

The Timeframe of a contract is stipulated at the bid-stage of the contract and all the bidders (including the successful bidder) must agree to that.

According to the timeframe the bidder (Contractor) prepares their plans to execute. This plan generally considers the ideal conditions given in the contract, with some considerations for the odds may happen during the contract period.

It is not possible to envisage and assess all the problems can arise at a later stage which hampers the progress of work.

General reasons for delay in work (and Extension of Time in Construction Contracts is required)

  • Delay in handing over the work site to Contractor by the Employer due to many issues including land acquisition issues.

  • Delay in obtaining statutory licenses and Government approvals for the project.

  • Delayed release of construction drawings by the Architects and Structural Design Engineers.

  • Delay in procurement of required materials by the contractor.

  • Cessation or delay in manufacturing of important materials by the approved manufacturers.

  • Delay in transportation of materials.

  • Delay due to Force majeure reasons

  • (unprecedented natural calamities, unrest or riots, wars, pandemic conditions etc.)

  • Delayed payment release by the Employers to the Contractors.

  • Unavailability of sufficient skilled manpower.

  • Poorly planned completion schedules

  • (not considering realistic work-methodology for tasks and thereby under-considerations of resources)

  • Addition of scope in the contract after commencement of Project.

Delay accountability

Delay accountability’ is deciding the party responsible for the delay happened in a project.

Contractors are responsible for delays pertaining to delay in mobilizing important resources for completing the project, poor planning etc.

Employers are responsible for delays in handing over work-site to Contractors, issue of deliverables (drawings, decisions, Govt. approvals etc.) on time, payment to the contractors on time etc.

Neither of the parties are accountable for delays happened due to Force majeure events, changes in Govt. policies or international laws.

Delay accountability – Major types of Delay

By the Contractor

  • Poor Planning for execution, resulting in

  • non-timely engagement of resource

  • improper / unrealistic methodology

  • wrong selection of resources

  • under considering resources

  • Irregularity in delivery of resources at site (Supply chain failure)

  • Unable to mobilize required skilled workforce

  • Delay in release of drawings by Contractor or Consultants engaged by them (in case of an EPC project)

  • Construction error and rectification

By the Employer

  • Delay in handing over of work-front to the Contractor

  • Delay in obtaining approvals from the local bodies or Government authorities for which Employer is responsible as per contract

  • Irregularity in release interim payment to the Contractor

  • Delay in engaging Consultants or Architects

  • Delay in release of drawings and decisions by Employer or Consultants engaged by them

  • Construction error and rectification arisen out of faulty drawings or decisions given by the Employer

By Other Factors

  • Natural calamities (Flood, Tsunami, Cyclone, Earthquake etc.)

  • War

  • People unrest or revolution

  • Riot

  • Epidemic or Pandemic outbreak

  • Change in Govt. policies

  • Change in the law of the land or international law

Implications of Delay in a contract

If the delay is done by the contractor:

  • The Contractor is not eligible for claiming any cost compensation.

  • Employer may or may not charge liquidated damage as per the applicable contract term.

  • Time extension is awarded to the contractor to complete the balance work.

If the delay is done by the Employer:

  • The Contractor is eligible for claiming the cost compensation due to the delay happened.

  • Employer cannot charge liquidated damage or any other penalty.

  • Time extension is awarded to the contractor to complete the balance work. The additional cost which is incurred by them should be decided and paid.

If the delay is done by any other factor:

  • Time extension is awarded to the contractor to complete the balance work.

  • Contractor will not have right to get cost compensation if it is not explicitly mentioned in the contract

  • Employer will not be able to charge liquidated damage to the contractor

What can the Employer do to avoid delay?

  • Make the work front available to the Contractor on time.

  • Arrange for all the permissions and licenses from the relevant Govt. departments before commencement of the project.

  • Arrange to issue all the drawings and decisions (if it is in the scope of the Employer) on time for the Contractor.

  • Arrange to pay the Contractor as per the terms of the contract, without any delay.

  • Finalizes the Master Schedule before starting the project and monitor the resource mobilization and work progress minutely with the stakeholders and do necessary follow-up with the concerned.

What can the Contractor do to avoid delay?

  • Prepares the master schedule with minute details

  • Adopts correct methodology and considers right quantities of resources (doesn’t under-plan).

  • Mobilizes all resources on time as per requirement of the Master schedule.

  • Mobilizes sufficient skilled manpower and staff at site as per requirement.

  • Notifies all the stakeholders for any input required to achieve the desired progress always.

  • Remains vigilant for safety of the workplace and workmen always to avoid any accident.

  • Observes required quality of the work at site to avoid any re-work.

Impact of EOT on the cost of contract

  • EOT means staying in the contract for a longer duration.

  • Overhead of the Contractor increases, thereby the cost of construction is also increased if the cost increase in overhead is more than the contingency cost considered by the Contractor.

  • Employer loses on revenue generation from the project.

EOT – What need to be done by the parties?

  • Establishing a delay and granting EOT by Employer does not entitles the Contractor for compensation of cost by default.

  • To get the cost compensation from the Employer, the Contractor must establish that the delay is not attributable to the Contractor.

  • To establish the reasons of delay, the reasons are to be recorded by both the parties jointly since the commencement of the contract.

  • Every details of the delay events must be recorded so that the responsibility can be easily assessed later.

Delay register for EOT – A Sample Format

The above delays are to be incorporated in the Master schedule to determine the delay happened in totality, and also to segregate the ‘delay accountability’ of the Employer and Contractor. Generally, the delay due to the Contractor is not considered while preparing the impacted schedule as described above, and thereby not considered for EOT.

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