Forty-Three Days Late, a Missing Notice and a $50,000 Settlement Limit
The Harbour Regulatory Board contracted Kiln & Co to install a wastewater monitoring system for a fixed price of $640,000, with completion by 30 September and liquidated damages of $1,200 per day for late completion. The contract required the Board to give the contractor site access and to provide 'reasonably required' design data by 1 July. The Board's engineer supplied the data six weeks late. In August the engineer also instructed orally that the contractor 'add two extra sampling points - we will sort the paperwork out later'. The contractor completed on 12 November, 43 days late, and now claims a 55-day extension of time. The project manager wants to apply the full $51,600 in liquidated damages and reject the claim outright, because the contractor did not give notice of delay within the 14 days required by clause 21. The contractor says nobody told it about clause 21 and that the Board's own conduct caused most of the delay. The Board's delegated financial limit for settlements is $50,000.
1. Is the Board entitled to the full $51,600 in liquidated damages? Work through the entitlement, the notice point and the likely net position.
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Liquidated damages compensate for delay caused by the contractor. They do not apply to delay caused by the principal, so the first step is to apportion the 43 days by cause, not to apply the rate to the whole period.
Cause and entitlement
- Six weeks of late design data is a plain Board-caused delay. The contractor was entitled to that time; it is an extension-of-time event whether or not the contractor asked nicely.
- Two extra sampling points were instructed by the Board's engineer. Even if the variation mechanism requires writing, a directed change acted upon gives the contractor an entitlement to time and money - see the next task.
- Some of the 43 days will be the contractor's own: mobilisation, resourcing, weather if risk was allocated to it. The project manager needs a delay analysis showing which activities sat on the critical path and for how long, not a single global figure.
The notice point
Clause 21 must be read as drafted. If it says notice is a condition precedent to an extension, failure is serious; if it merely requires notice as an administrative step, or if the Board already knew the facts (it caused them), strict reliance is much weaker and a court or review body may find the requirement waived by conduct. The Board's own breach makes it unattractive to insist on a notice the contractor could not usefully give.
Realistic net position
If about six weeks of the delay is Board-caused - say 40 of the 43 days - the contractor is entitled to roughly 40 days extension and is chargeable for only about 3 days: about $3,600, not $51,600. The Board should also confirm the rate is a genuine pre-estimate of loss, not a penalty, and check any cap.
2. Was the engineer's oral instruction a valid variation, and what should the Board do about it now?
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Authority first. The question is not whether the instruction was oral but whether the person giving it had authority to change the scope. If the engineer was the Board's representative with delegated power to instruct variations, the instruction binds the Board even if the internal paperwork was not done. If the engineer exceeded a delegated limit, the Board may still be bound where it clothed the engineer with apparent authority and the contractor reasonably relied on that. An organisation cannot generally defeat a contractor's claim by pointing to an internal authorisation rule the contractor had no way of knowing about.
Form second. Construction and supply contracts commonly require variations to be instructed or confirmed in writing within a set period. Breach of the form requirement does not automatically make the work free: the contractor has done the work, the Board has received the benefit, and the Board's own officer caused the irregularity. The likely outcomes are that the variation is valued under the contract's valuation mechanism, or that the contractor recovers on a restitutionary or estoppel basis if the contract route fails.
What to do now
- Confirm the instruction retrospectively in writing, dated, and signed by the correct delegate, describing the two sampling points and the date instructed.
- Value the work: priced at contract rates, or by a fair valuation based on measured work plus reasonable overhead and profit.
- Assess the time effect: were the extra points on the critical path, and for how many days?
- Record the authority issue and tighten the delegation register so that field officers know their limits and the required written-confirmation step.
3. The parties are now in dispute and a settlement of around $48,000 is being discussed. What legal and governance issues govern whether the Board can settle, and how should the decision be recorded?
Read the worked answer
Authority. The Board's delegated settlement limit is $50,000. A $48,000 settlement sits inside the limit, but it must be signed by the officer who actually holds that delegation, and the limit must be tested against the total exposure, not just the cash figure. If the settlement includes waived liquidated damages, extra works, an extension of time and a variation, the aggregate value may exceed $50,000 and require escalation to the Board.
Legal test. Is the settlement a reasonable estimate of the Board's likely liability if the dispute went to adjudication or court? Build the number: extension-of-time entitlement, value of the two extra sampling points, delay costs, and only the genuinely contractor-caused delay at $1,200 per day. Compare that with $48,000. If the figure is close to the likely judgment, settling is prudent; if it is much higher, the Board is paying to avoid process, which needs a specific justification.
Process and natural justice. Before deciding, give the contractor the chance to put its position on the delay analysis; a settlement reached without hearing the other side invites challenge. If the Board is also considering any sanction against the contractor (debarment, poor performance rating), that decision needs separate notice, particulars and an opportunity to respond.
Record. Minute the decision with the analysis, the range considered, the reasons for the figure, the delegated approval, the release terms and a confidentiality clause where appropriate. Note the conflict position of any officer involved. File the executed deed of settlement with the contract record and close out the liquidated damages claim in the register so no later officer attempts to recover the same amount.