As previously announced, in today's article, we will review the differences between delay and default, including which circumstances can be classified in practice as part of each category and the consequences of contractor delays in the performance of a construction contract. In our experience, one of the common problems investors face in project implementation is contractors' failure to meet contractual deadlines, which in many cases leads to severe consequences for the investor, including the timely delivery of the premises to the buyers. Delays on the part of the investor are less common, and when they do occur, they most often involve late payment.
We will, of course, begin by explaining the definitions of "delay" and "default." According to the Civil Code, delay is defined as a situation in which a debtor (in this case, a construction contractor) fails to perform on time for reasons beyond their control . If the contractor's delay occurs for reasons beyond their control, they are in default, also known as qualified default . Determining whether the debtor's behavior qualifies as default or ordinary delay significantly impacts the creditor's (investor's) rights, particularly with respect to the calculation of contractual penalties.
It's also worth mentioning that a delay doesn't necessarily have to be the contractor's fault ; it can result from the fault of its employees, subcontractors, or other causes for which it is responsible. Therefore, it's possible to hold the contractor liable, including imposing contractual penalties, if delays in project completion result from a subcontractor's failure to complete construction work.
However, it cannot be said that there was a delay on the part of the contractor if the delay is due to, for example, weather conditions that prevented the performance of the construction works (low temperatures, heavy rain or gusty winds), a power outage, the discovery of an object on the construction site that is suspected to be a historical monument, or the initiation of proceedings as a result of which the construction works were suspended (e.g. proceedings for entry in the register of historical monuments).
As you likely remember, apply accordingly to the consequences of a contractor's delay in commencing work or completing a structure, or if the contractor performs work defectively or in a manner inconsistent with the contract, to the warranty for defects in the completed structure, and to the investor's right to withdraw from the contract before the structure is completed. Therefore, the investor may, without setting an additional deadline, withdraw from a construction contract even before the deadline expires if the contractor delays in completing or commencing the work, and the delay is so significant that it is unlikely they will be able to complete it within the agreed timeframe. This right also applies if the delay occurs for reasons beyond the contractor's control, regardless of whether such a clause is included in the contract.
However, in a situation where the contractor is in default, i.e., as mentioned earlier, when the delay occurs due to reasons for which the party is responsible, the investor will be entitled, under the Civil Code, to, among other things:
- to seek court action to obtain performance from the contractor and compensation for damage resulting from the delay,
- if, as a result of the contractor’s delay, the performance has lost all or most of its significance for the investor, the investor may refuse to accept the performance and demand compensation for the damage resulting from the failure to perform the obligation,
- to apply to the court for authorization to perform the activity at the contractor's expense.
It is worth remembering that in cases where the contract stipulates contractual penalties for a given circumstance, the right to claim compensation exceeding these penalties is only available if the parties have introduced such a reservation (we wrote about it in the alert #97).
Regarding contractual penalties, both case law and legal doctrine indicate that contractual penalties may only be charged when the delay is due to the debtor's fault, i.e., when the contractor falls into default. Therefore, charging contractual penalties for delay in every situation will be problematic.
It's also important to determine which party bears the burden of proof as to whether a delay or default is occurring. In this case, the regulations rest with the investor, who is only required to demonstrate that a delay occurred, resulting in contractual or statutory consequences, including the right to demand payment of a contractual penalty. However, the contractor, seeking to exonerate itself from the consequences of default, must provide evidence proving that the delay occurred for reasons beyond its control.
In summary, as the above indicates, the range of creditor rights in situations where the debtor is in default and default differs dramatically. Therefore, it is crucial for the investor to determine whether a given situation constitutes default or a delay, as correctly classifying the factual circumstances allows for appropriate action to be taken, which should ultimately contribute to the timely completion of the construction contract.
Next week we will focus on the topic of indexation clauses in construction contracts.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of April 11, 2022.
author:
