Clients are often surprised when they discover clauses in their construction contract that require them to give notice to the building contractor, usually within very short periods of time, of their intention to dispute a set of circumstances, failing which, they lose their right to refer such a dispute for dispute resolution. This then raises the question of why these clauses are present and how enforceable they are.
Interestingly, shortened time-based limits for the notification and resolution of disputes have become the norm in construction contracts. These clauses, often referred to as “time-bar” clauses, have found their way into the construction environment as a result of the following factors.
Tight time frames are generally imposed on contractors to finalize projects, with any delay potentially having a tremendous impact on the overall ability to complete on time.
- The high risk of incurring damages and losses if a project is not completed on time, especially if the project is expected to generate revenue once completed or completion payments are delayed.
- The high cost of having contractors and workers on-site without construction work proceeding.
In short, these clauses have become relevant to avoid excessive project delays flowing from unresolved disputes, as the longer a dispute takes to get resolved, the greater the cost to have the project completed.
Most standardized, widely used construction contracts make provision for alternative dispute resolution forums, subject to these time-bar clauses outside of the traditional “court-based” litigation. Examples of such standardized forms include the NEC, FIDIC, JBCC and GCC forms of contract. The particular contract and its specific negotiated terms will of course need to be considered in every separate instance to determine the exact time limits imposed.
The NEC3 form of contract, for example, generally requires that a party to the contract that intends to dispute any circumstance arising from the contract must within two to four weeks of becoming aware of the dispute give notice to the other party that it intends to do so. In certain instances, the time frames may be even shorter than this.
There has been considerable discussion regarding whether it is reasonable and whether it should be permissible to include such limitations in agreements. Our Constitutional Court in Barkhuizen v Napier in 2007 finally determined that subject to certain requirements, time-bar clauses are enforceable. They must, however, provide reasonable and clear notice periods.
So, given that these time-bar clauses are enforceable, care should be taken when concluding a construction contract so that these provisions and their parameters are understood and appreciated. If necessary, consider involving a construction or commercial attorney to help provide clarity on these provisions and guide you on how to successfully ensure that any dispute is timeously raised and correctly dealt with contractually.