A storm in a contract

Weather patterns in 2021 and 2022 have been – at best – challenging for construction, and this has put many projects under pressure. Extensions of time may not be available for the prolonged wet weather that has affected much of the east coast of Australia, and force majeure clauses have generally been of little assistance as prolonged wet weather does not easily fit into ‘usual’ heads of force majeure such as there being a named cyclone or flood.

It is common for building and construction contracts to pass the risk of inclement weather down the contractual chain to head contractors and subcontractors. If the weather is good, a contractor or subcontractor can build additional days of contingency to finish early or to deal with unanticipated delays. If the weather is bad, then a contractor or subcontractor has an increased risk of not achieving practical completion and incurring liquidated damages.

With continued wet weather predicted for 2022, all parties to a current or upcoming project may want to consider whether the status quo of looking to pass down the risk of inclement weather will result in a good outcome for the project.

Current projects

For current projects, parties will have to work within their existing contractual frameworks in relation to inclement weather. This noted, principals on projects that have been materially affected by wet weather may wish to consider whether there is a commercial benefit in granting an extension of time even if there is no contractual entitlement.

While the commercial drivers will vary from project to project, making a commercial decision to grant an extension of time under the contract could help to prevent future disputes and claims. Put another way, disputes and claims may not be made if a party that is under time pressure is granted some relief, allowing all parties to the contract to refocus on achieving a successful outcome for the project.

Any commercial agreement to extend the date for practical completion would need to be properly documented in accordance with the contract to avoid any argument that time has become at large.

Alternatives for new projects

Looking forward, all parties to a project should consider whether the general approach of looking to push the risk of inclement weather down the contractual chain on projects with tight construction programs is sustainable. Some alternatives to consider include:

• Increasing project contingencies for wet weather but leaving the time and cost risk with the head contractor. This has the advantage for financiers and developers of continuing to keep the risk with downstream contractors but the disadvantage that it can result in a longer construction program and additional costs to the project, potentially impacting a project’s feasibility.
• Allowing wet weather as a defined extension of time event, but without cost. This can be complicated for contractors when tendering as it does allow for relief from liquidated damages for wet weather but the contractor would still bear the risk of the additional preliminary and prolongation costs for any delay.
• Allowing for wet weather as time and cost, or time and then cost after an agreed number of days. This gives contractors more certainty but does ultimately transfer both time and cost risk of inclement weather to project proponents and developers.
• Looking to include relief for prolonged wet weather as a force majeure event. However, our view is that there will likely be difficulties in agreeing a workable definition, and agreeing to include wet weather or inclement weather as a separate extension of time event is a better alternative.

Defining inclement weather

The definition of wet weather or inclement weather should be carefully considered so that the definition works for each project. This is something that contractors in particular should be careful to consider: there can be a successful negotiation to include inclement weather as an extension of time claim but the definition of inclement weather may then be a high bar to achieve before any extension of time can be granted. For example, there may be a requirement for six hours of ‘continuous’ rain which would mean that any break in the weather, even if short, would reset the clock.

Parties should also consider whether the definition should deal with:

• other weather events that prevent work from being safely carried out, such as high winds, poor air quality and high heat and humidity;
• the ‘effects of’ wet weather. An event may occur for a relatively short amount of time but the time taken to dewater the site and make the site safe can prolong any delay. If the definition of inclement weather is narrowly drafted, then a contractor may be able to claim for the time lost during the event but not for the further delay.

Please get in touch if we can help you with your strategy for managing inclement weather risk under a contract on a current project, or with considering alternative frameworks for new projects.

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Authored by:

Paul Calvert, Partner
Jim Demack, Partner