EOT claim, an overstated interim certificate and pressure to levy liquidated damages
You administer a HK$92M fixed-price contract for a 12-classroom extension and new hall at a subsidised secondary school, using the HKIA/HKIS Standard Form with quantities. The contract period is 15 months and the completion date was 31 March. The contractor claims 61 days' extension of time: 26 days of rain including four black rainstorm days, 8 days for two No. 8 typhoons, 10 days because a government department delayed a road-opening permit, and 17 days for an alleged chronic shortage of steel fixers. He also claims HK$4.2M prolongation cost. You have issued three interim certificates. While preparing the final account you find that certificate No. 2 overstated the measured value of the piling remeasurement by HK$1.8M in the contractor's favour, and the client has paid it. The client now instructs you to hold back HK$3M from the next certificate as leverage because the contractor has threatened to demobilise, and to reject all EOT so that liquidated damages of HK$45,000 per day can be levied.
1. Assess the extension of time claim event by event, including cost entitlement.
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Assess each event against the extension of time clause and the contract's risk allocation, not against fairness.
Rain (26 days). Most Hong Kong forms give EOT for exceptionally inclement weather. The test is not whether it rained but whether the weather exceeded the contractual benchmark - check the clause and any preambles defining the measure, often meteorological records over a stated period. Ordinary wet-season rain is at the contractor's risk. Allow only the excess days that actually affected the critical path, using the contractor's daily records and HKO data.
Typhoons (8 days). Similar treatment, usually within inclement weather. The days when No. 8 is hoisted and the site closes may qualify; clean-up days only if they actually delayed the works, and the contractor must mitigate.
Road-opening permit (10 days). Depends on who was obliged to obtain the permit. If the contractor was responsible for applying, delay in the department's processing is generally the contractor's risk; if the contract makes delay by a statutory authority a neutral event, EOT may be due but usually without cost. Check the clause and the correspondence: was the application made diligently?
Steel fixers (17 days). Labour shortage is a market risk and normally the contractor's own risk; a chronic shortage is not a relevant event unless the contract says so or it was caused by an employer act.
Concurrency. If a contractor-risk event would have caused the same delay anyway, the overlapping period should not attract EOT. Do a proper delay analysis - as-planned against as-built, or time impact - rather than summing days.
Cost. Extension of time is not money. Prolongation costs are recoverable only if the event is also a compensation event, such as late possession, late instructions or variations. Rain and typhoon are usually time-only.
Conclusion. Grant EOT only for demonstrable critical delay from qualifying events; reject the labour and permit claims unless the contract makes them relevant events. Do not reject everything simply because the client wants liquidated damages.
2. You discover the HK$1.8M overstatement in certificate No. 2. What do you do?
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Tell the client immediately, in writing, giving the amount, the cause and the proposed correction. Concealing it or quietly off-setting it is worse than the error.
Check the contract's correction mechanism. Most Hong Kong standard forms allow the architect to correct an error in a previous certificate, whether in a later certificate or at the final account, and the certified amount must reflect the true value of the works. Read the clause before acting: a power to correct is not a power to deduct arbitrarily.
If the sum has been paid, the overpayment is recoverable from the contractor as a debt or by adjustment at the final account, depending on the contract and on whether the contractor disputed the certificate. If the contractor is in financial difficulty, recovery may be at risk; that is a reason to act quickly, not to hide the error.
Root cause. Review the measurement: transcription error, wrong dimension, or deliberate over-measure? Check who prepared and checked the valuation and whether the same error appears elsewhere. Report to the client what controls will prevent a repeat.
Professional position. Notify your professional indemnity insurer if the client may suffer a loss and a claim is possible, and cooperate with the client. Do not issue a certificate you know to be wrong in order to even it out later.
Advice to the client. The next certificate should be certified at its true value; the overpayment should be corrected at the final account or recovered as a debt, with legal advice if the contractor disputes it.
3. The client instructs you to hold back HK$3M as leverage and reject all EOT to preserve liquidated damages. How do you respond?
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Separate the two instructions; both are improper as put.
Holding back HK$3M as leverage. The architect certifies the value of work done in accordance with the contract; a certificate is not a bargaining chip. Deducting an amount with no contractual basis exposes the client to a claim, interest or financing charges, and possibly suspension or termination by the contractor. It also exposes you: a certificate issued to pressure a party is not an honest certificate. Tell the client in writing that you cannot do it, explain the consequences, and offer lawful alternatives - checking whether the contractor is in breach and whether the contract allows set-off, calling on security, or holding a genuine retention.
Rejecting all EOT to preserve liquidated damages. You must decide the claim on its merits. If EOT is due, liquidated damages cannot be levied for that period, and certifying them on a false basis is a breach of duty that will be challenged in arbitration or litigation, where your own correspondence will be evidence. Assess the claim properly, issue a written decision with reasons, and certify accordingly.
If the client insists. Put your advice in a formal letter, record the instruction, and consider whether the appointment can continue. Depending on the terms, you may be entitled to resign on notice if instructed to act improperly; check the appointment, notify your PI insurer, and consider seeking advice from the HKIA. Do not simply comply and hope the dispute settles.
Tone. Be practical: the client's real concern is the threatened demobilisation. Deal with that through the contract - a meeting, a recovery programme, a formal warning letter - not through a false certificate.