Time Bar Clauses; “I’ve got a great idea!”

13/11/2020

For the benefit of anyone not familiar with the phrase ‘Time-Bar Clauses’, they are notice provisions, which typically state that the failure to submit a notification of a claim within a defined timeframe will lead to the loss of right to that claim.

I will put my cards on the table from the outset. I don’t like them! 

Consider the following:

A contractor is instructed to carry out additional work, the nature of which causes completion to be delayed by 50 weeks. His time-related preliminary costs are £10k a week and liquidated damages are £10k a week.

For reasons of ignorance, incompetence or a simple oversight, the contractor fails to raise the requisite delay notice until a week after expiry of the time-bar period. The effect of this failure is to eradicate the contractor’s genuine entitlement to 50 weeks EOT and to be paid £½m prolongation costs.

This is coupled with gifting a further £½m in liquidated damages to the Employer who has effectively just won £1million.

I can hear a chorus of objecting voices. “That’s completely ridiculous, nobody would be so daft. It would never happen.” Well……. 

No, it isn’t (completely ridiculous), yes, they would (be so daft) and yes, it would and does happen (remarkably often).

Don’t just take my word for it. There are many authorities on this topic with similar observations.

For example; Robert Knutson’s paper “An English Lawyer’s View of the New FIDIC Rainbow – Where is the Pot of Gold?” Whilst discussing clause 20.1 of the FIDIC standard contract (a ‘time-bar’ clause) he states:

“Contractors inevitably fail to notify perfectly legitimate claims…..”

Also, R Champion’s paper “Variations, Time Limits and Unanticipated Consequences” includes the following footnote:

“This [failure to notify], it appears, is all too common. At a recent FIDIC conference in London, two speakers (both lawyers experienced in handling claims under FIDIC contracts), observed in identical terms that, in their experience, contractors habitually did not give notices on time. Other speakers and contributors endorsed the observation.”

Justification for the use of time-bar clauses

There is of course, some justification for the use of time-bar clauses. The NEC Contract is well-known to contain a time-bar provision in relation to notifying compensation events. The NEC explanatory notes state the reason for the time-bar clause is “to avoid having to deal with a compensation event long after it has occurred there is a time limit on notification by the Contractor.” This is intended to fit with the NEC’s overriding objectives of a “stimulus to good management” and to “….minimise the incidents of disputes.”

There is also some support from the judiciary. In the case of Multiplex Construction v Honeywell Control Systems Mr Justice

Jackson held that;

“Contractual terms requiring a contractor to give prompt notice of delay serve a valuable purpose; such notice enables matters to be investigated while they are still current. Furthermore, such notice sometimes gives the employer the opportunity to withdraw instructions when the financial consequences become apparent.”

The alternative justification

Well call me cynical, but I can picture the scene:

Gathered around a meeting room table is a company MD and half a dozen professional looking business types. Amongst the group is a sharp suit and a shifty smile (you’ve guessed it; a lawyer!). “I’ve got a great idea!” the lawyer says; “We put a ‘time-bar’ clause in the building contract and that way, you can instruct significant extra work for a bargain basement, knock-down price.”

“How does that work?” enquires the MD, “surely we must pay for extra work?”

“Maybe not,” says the lawyer, “if you instruct your contractor to build an extra wing on your hotel it might cost you £2m in total, comprising £1m for the work, a further £½m in time-related preliminaries costs and £½m in lost revenue because your hotel won’t open for an extra year. However, with my carefully drafted ‘time-bar’ clause, if your contractor doesn’t give the requisite notice at the correct time, the cost to you will only be £1m. You won’t have to pay the time related preliminaries costs and you can recover the lost revenue by way of delay damages.”

The MD looks sceptical. “Surely the Contractor won’t forget to give notice?” 

“In my experience there’s every chance they will.” Replies the lawyer. “We tuck the ‘time-bar’ clause away on page 84 of the building contract, the team running the site won’t know where the contract is, let alone what’s in it. Whoever signed the contract 18 months earlier will have moved on and won’t have told anyone about our time-bar clause, and the commercial team will be too busy to issue timely & compliant notices. Believe me, all contractors are the same; an unhealthy mixture of shambolic and gullible.”

“Brilliant!” says the MD, “get the clause drafted.”

Unintended Consequences

Pyments has recently seen of a number of building contracts containing ‘time-bar’ clauses; hence this article! In preparation I did a bit of research…….

Within a short period of time I discovered more than 60 legal cases concerning time-bar disputes. I also discovered an ocean of academic opinion on whether or not such clauses are enforceable (it seems, as a general rule, the courts have decided they are) and exploring various ingenious strategies to circumnavigate a ‘time-bar’ clause.

My research touched upon various fascinating propositions and legal topics such as:

  • The prevention principle
  • Estoppel
  • Unenforceable penalty clauses
  • Contra proferentem
  • Parallel entitlement by way of damages for breach
  • Forfeiture clauses

To name but a few! But what does it all mean?

To be perfectly honest, it would take a far more agile legal mind than my own to explain it properly. Academics, lawyers, barristers, judges – they couldn’t be happier! Endless hours debating the enforceability of time-bar clauses and potential legal loop-holes to avoid the consequences of same. 

As for the unfortunate ‘time-barred’ contractor, I consider it highly unlikely the response would be “it’s a fair cop…keep the £1m!” Conversely, an Employer faced with a windfall of £1m and legal advisors confirming entitlement, is extremely unlikely to respond by saying “don’t be so daft, it doesn’t seem fair to keep the money….”

Isn’t there a clear danger that the inclusion of the time-bar clauses will increase rather than reduce the chances of the parties ending up in court? The answer appears to be ‘yes’ based on the evidence of the weight of case law and legal analysis.

An Apology

I am mindful that some of my comments could offend employers, contractors, academia, the legal profession and the judiciary.

I apologise to you all. My comments are not intended to offend. They are designed to illustrate the point…’time-bar’ clauses can potentially do more harm than good. 

If we must have time-bar clauses in our contracts, then the advice to Contractors is clear.

Take the time to understand what clauses are included in your contract and the implications. If your contract includes a ‘time-bar’ clause, give the notice or make the application in a timely manner as required by the clause.

In fact, why not give the whole ‘programme monitoring and progress reporting’ thing the attention it deserves? After all – prevention is very much better than cure!

  • Produce a workable, properly logic-linked programme and identify the critical path.
  • Update your programme regularly and accurately.
  • Report programme delay as soon as it occurs and identify what has caused the delay.
  • Apply reasonable endeavours in an attempt to realistically mitigate as much of the delay as possible. 
  • Wherever practical agree revised programmes with the Employer and monitor progress on the “accepted” programme.

And most importantly:

  • Give the requisite delay notices along with the necessary supporting particularisation and do so in a timely manner……

Don’t fall foul of the ‘Time-Bar Clause’.

 

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