When does a ‘no delay costs’ clause apply?

September 12, 2019

In the recent decision of Lucas Earthmovers Pty Ltd v Anglogold Ashanti Australia Ltd [2019] FCA 1049, the Federal Court of Australia has held that a contractor had no contractual entitlement to delay costs in circumstances where the contract provided that an extension of time was the contractor’s sole remedy for delay.

 

The plaintiff, Lucas Earthmovers Pty Ltd (Lucas) was contracted by Anglogold Ashanti Australia Ltd and its joint venture partner Independence Group NL (together, the Principal) to construct a 223km road to the Principal’s remote mine site near Kalgoorlie in Western Australia.

 

Lucas agreed to construct the road under a lump sum contract for $35 million. The contract provided that Lucas would be able to obtain material for the sub-base layer of the road primarily from V-drains dug on either side of the road, with some sub-base and all top layer material to come from borrow pits close to the road’s alignment.  

 

Clause 29.3(a) of the contract provided that variations would be priced:

 

(i)   according to the rates in the Schedule of Remuneration (SOR); or

(ii)  if the SOR did not apply, by agreement of the parties; or

(iii)  failing agreement, by the Principal determining a ‘reasonable rate or price’.

 

Clause 18.8 of the contract provided that, notwithstanding any other provision of the contract, Lucas had no entitlement to claim for liabilities resulting from delay or disruption, and that an EOT was Lucas’ sole remedy.

 

Lucas was required to undertake what it alleged were additional works, involving additional haulage, obtaining more materials than expected from borrow pits and additional work on the sub-base layer. The Principal had previously accepted these additional works as variations and had paid Lucas as such. For most parts this was done in accordance with the SOR, as required by clause 29.3(a)(i) (the SOR Variations). However, for some parts where the hauling distances were longer than those provided for in the SOR, the Court had to determine a “reasonable rate or price” pursuant to clause 29.3(a)(iii) (Other Variations).

 

Lucas claimed an entitlement to preliminaries for both the SOR Variations and Other Variations. These were expressed as a weekly unit rate although they formed part of an overall “fixed and firm” lump sum. The Principal argued that a reasonable rate could not include preliminaries because they were time-related costs and clause 18.8 provided that Lucas had no entitlement to delay costs.

 

In the Federal Court, White J found in favour of the Principal in respect of the SOR Variations. In reaching his finding, White J had regard to the fact that the SOR provided rates for pricing variations that were stated to be “all inclusive” and were to cover “all matters things and items of expense”, including profit margins and costs associated with time to perform the SOR Variations.

 

His Honour held that, in respect of both the SOR and Other Variations, clause 18.8 applied only to costs, losses and expenses (including time-related costs) caused by delay or disruption, as distinct from those caused by variations. To interpret clause 18.8 as applying to all time-related costs would mean that Lucas might incur time-related costs for a variation but would not be entitled to compensation for those costs. This would also be inconsistent with other provisions of the contract, including the SOR, which fixed the price for work and included time-related costs. White J found that such an interpretation would not allow the contract to operate in a practical way.

 

However, while time-related costs were permissible, White J found that Lucas was in fact seeking to recover delay costs for delays to the completion of the contract as a whole. As clause 18.8 prohibited a claim of that kind, Lucas’ claim failed.

 

The full decision can be found here.

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