Legal effects of failure to timely request the extension of time pursuant to the agreement (Taiwan)

Luke Hung

I. Notification obligation for the extension of time

The extension of time is the most common scenario and dispute for the performance of a typical construction contract.  However, whether the reasons, extent and impact of a construction extension asserted by a contractor are reasonable and meet contractual requirements often rely on the necessary information timely provided by the contractor for the reference of the project owner.   Therefore, a contractor is mostly contractually required to notify the project owner within a specific period after the reasons for extension of time occur along with relevant supporting evidence.

Take the model contract (revision dated July 25, 2019) issued by the Public Construction Commission for example.  This model contract  provides: “If the supplier needs to extend the construction period during the term of the performance in any of the following circumstances (for reasons not attributable to the supplier) which affect the progression of the critical path, the supplier shall notify the procuring agency in ____ days (specified by the procuring agency when the tender is conducted; and if it is not specified, it should be 7 days) after the occurrence or disappearance of the incident, and apply to the procuring agency in writing for an extension of time by attaching relevant evidence in ____ days (specified by the procuring agency when the tender is conducted; and if it is not specified, it should be 45 days).”  The model contract requests that a supplier should issue a notice and apply for an extension of time within a specified period.  This requirement is beneficial since a loss of evidentiary materials can be avoided, and the supplier, who is most knowledgeable about the situation, will communicate essential information to the project owner as soon as possible to seek a reasonable solution.  Particularly when the project owner is responsible for coordinating with the interface of different suppliers, the supplier’s timely notification is of paramount importance to the project owner’s assessment on how to coordinate with the interface and grant a proper extension of time.

However, under actual circumstances, it is not uncommon that the supplier fails to notify the project owner in time, or that the extension of time is not requested until the project has entered a later stage or even has completed, or that the assessment materials so provided are not sufficient or are different from subsequent assertions (e.g., the notice to the project owner indicates there would be a three-day impact, which turns out to be different from the actual number of days affected in the end).  In addition to potential negligence in a supplier’s notification, a supplier may fail to send a notice in time for reasons such as the supplier’s concern about its relations with the project owner, occupied by the acceleration  unforeseen  construction delay, changes to the critical path after multiple construction extensions, or interplay of different extension reasons.

Under such circumstances, this will call into question whether the project owner may reject the supplier’s request for an extension of time on such basis when the supplier requests an extension of time after its failure to timely apply for a construction extension in a format required under the contract.

II. Practical opinions on whether the failure to lodge a timely request for an extension of time will result in a lapse of rights

1. Court opinions

Most courts are in the opinion that if a contract does not stipulate the effect of a lapse in case of failure to follow the procedure, it would be obviously unfair to deny the request for an  extension of time.  The courts further elucidate that the emphasis of the clauses for construction extension application is on the existence of the reasons for extending the construction period.  To wit, the key lies in “the existence of facts associated with the extension of time.”  As for whether the contractor makes a request within the required period or if the project owner approves, this is not the crux of the matter.  However, a fewer number of courts believe that since the contract specifically provides for a lapse of rights, the courts hold that such contractual arrangement is still valid.

The positions reflected in various court decisions are summarized below.

(1) The opinion that a lapse of rights will not be constituted:

The 100-Jian-Shang-177 Decision of the Taiwan High Court (which was upheld in the 103-Tai-Shang-1088 Decision of the Supreme Court) stated: “Article 5, Subparagraph 4 of the contract at issue stipulates that ‘In case of the initiation, suspension or completion of construction, Party B (i.e., the Defendant) shall notify Party A (i.e., the Plaintiff) in writing on the same day; and in case of natural or man-made disasters or other acts of God, Party B shall also notify Party A in writing, and such incident may be excluded from the construction period after Party A’s approval…’  However, if the Appellee failed to notify the Appellant in writing before the Appellant subsequently approved the extension, the incident was not included in the construction period merely because the Appellee did not assert such factors.  If the Appellee made and proved such assertion, the incident can still be excluded from the construction period to meet the principle of fairness.  The point is whether there was any reason for the extension of time, and whether Appellee notified the Appellant in writing and received its approval is not the key concern… If there is no need to maintain the legitimate interest of the Appellant, it would be obviously and potentially unfair to deprive the Appellee of the right to substantiate the grounds for the application of extension of time.”

The 101-Chung-Shang-Keng-(2)-113 Decision of the Taiwan High Court stated: “Article 8:(5)1 of the contract at issue stipulates: ‘If it is necessary to extend the construction period during the performance of the contract for reasons indeed not attributable to the supplier (i.e., Chung Hsin Electric & Machinery Manufacturing Corp.) in any of the following circumstances, the supplier shall apply to the Company (i.e., CPC Corp.) in writing to extend the construction period, and the liquidated damages for exceeding the period will not be calculated,’…The period set forth in this article is merely three days and is too short.  In addition, Article 11 of the model contract formulated by the Public Construction Commission, the competent authority when the contract at issue was executed, provides that ‘application to Party A (i.e., the project owner) to extend the construction period based on actual needs shall be filed, and such application shall not be accepted beyond the period.’  Since Article 8Paragraph(5) and Subparagraph1 of the contract at issue does not have any additional provision concerning ‘rejection of application beyond the period’ or any similar effect of a waiver or lapse of rights, in case Chung Hsin Electric & Manufacturing Corp. did apply to CPC Corp. to extend the construction period during a specific period, even if the above period is exceeded, it is still not appropriate to jump to the conclusion that the rights have effectively lapsed according to the above explanation.  Instead, whether Chung Hsin Electric & Manufacturing Corp. did secure the reasons for extension of time should be substantively reviewed.”

The above courts are in the opinion that when a contract does not have any provision concerning the effect of a lapse of rights, the failure of a supplier to apply for the extension of time within a specific period does not effectively constitute a lapse of rights.  It is obviously unfair if it is held that the supplier should not assert the extension right on such basis.  Therefore, the courts all believe that the reasons for extension of time should be substantively reviewed.

(2) The opinion that a lapse of rights will be constituted

The 103-Chien-Shang-Keng-(1)-28 Decision of the Taiwan High Court:

According to such opinion, the contract stipulates: “If application to extend the construction period during the construction of this project for any reason indeed not attributable to Party B (i.e., the Appellant) is required in any of the following circumstances, Party B shall apply to Party A (i.e., the Appellee) to extend the construction period based on actual needs in five days upon occurrence of the incident or disappearance of the reasons, and Party A may reject the application beyond such a period…”  To wit, it is specifically stipulated by contract that if the supplier fails to apply for a construction extension within the period stipulated by the contract, the project owner has the right to reject the application.  Therefore, the court held: “The requirement under this article that the contractor shall apply for a construction extension within a specified period is imposed to facilitate the control of timing and collection of evidence by the parties to ascertain the attribution of the responsibility for extending the construction period.  This does not intend to enhance the responsibility of the contractor, not to mention that the five-day application period stipulated under the contract is expectable and appropriate.  There is no major disadvantage to the contractor or any restriction on the exercise of rights….The Appellant’s assertion that the provision of Article 10 of the contract at issue concerning the requirement that the Appellant should apply for a construction extension within five days upon occurrence or disappearance of the extension reasons and that the Appellee may reject the application beyond such period is invalid is obviously unacceptable.”

Therefore, when a contract specifically stipulates that the failure of a supplier to apply for a construction extension in time will effectively result in a lapse of the rights, the court may be inclined to hold that such provision is still valid.  Therefore, if such provision still exists in a construction contract, the supplier should notify the project owner of any potential reason for extension of time  when it happens to reserve the right to make such a request.

2. Arbitration opinions

In most arbitration practices, failure to apply to the project owner for an  extension of time within the period stipulated in the contract does not constitute a lapse of rights.  For example, the arbitrators in the 102-Chung-Xuong-Sheng-Yi-7 Arbitration Award asked if the failure to apply for an extension of time within the period stipulated by the contract constitutes a lapse of rights.  Although the arbitrators’ opinion was not specifically explained in the reasons for the arbitration award, still the tribunal specifically determined if the construction period should have been granted according to the facts associated with each extension reason in such case.

3. Reasonableness of the provisions concerning a lapse of rights

In the past, the model contract of government construction procurement  did contain provisions concerning a supplier’s waiver or lapse of the right to extend the construction period.  Therefore, the Fair Trade Commission indicated its opinion on such unfair provisions in its (86)-Gong-Er-8605226-005 Circular as follows: “….However, if the risks assumed by the parties to a transaction are obviously unequal for reasons attributable to the procuring agency to the extent that such unequal risks exceed the construction completion risk expectable to the contractor and obviously impair efficiency competition for construction projects, and if compensation cannot be sought for the same matter, the likelihood of obvious unfairness cannot be excluded.”

In this regard, the 89-Tai-Shang-1402 Decision of the Supreme Court further criticized and pointed out that with respect to the restriction on a supplier’s request for an extension of time or the waiver of such request, “a unilateral decision on the number of days allowed for an extension of time, over which the Appellant had absolutely no say, violates the principle of good faith and is obviously unfair to the Appellant.”  Later, the such extension of time provision quite unfair to suppliers was removed from the model contract of  government construction procurement.  Since the current model contract does not have any provision on a lapse of rights in case of the supplier’s failure to contractually request an extension of time, the assessment of such matter is reverted back to the reasonableness of the extension of time, which should be specifically considered.  Such provision is indeed fairer to the suppliers.

IV. Conclusions

The author believes that for certain construction extension reasons, it may be necessary to wait for the completion of the entire project so as to comprehensively consider and review all extension reasons before the impact, if any, on the completion deadline and the extent of such impact can be ascertained.  If it is found after the subsequent comprehensive review of the construction period under the contract that there is any previously unknown extension reason which indeed affects the construction period, it appears unreasonable not to grant a reasonable extension of time to the supplier from the standpoint of professional schedule management.

Moreover, since the main purpose of contractually requiring a supplier to apply for an extension of time within a specific period and in a certain manner is to avoid a loss of evidence to facilitate the review of the reasonableness of an extension of time by the project owner.  Since a supplier is required to assume the burden of proof concerning the reasons for an extension of time, such provision is in fact made to remind a supplier of its interest.  If the supplier’s right to produce evidence and assert rights is deprived without justification, this is likely to be obviously unfair.

Therefore, based on the foregoing reasons and in reference to the above positions of courts and the Fair Trade Commission concerning the construction extension provisions, if a supplier fails to timely request a construction extension pursuant to the contract, the request for a construction extension should still be properly determined based on evidence, and it is not appropriate to directly reject a supplier’s subsequent request for an extension of time.  In addition, except for justified reasons, it is not appropriate to include a provision on a lapse of rights in the contract.