What is the significance of time being of the essence?
If time is of the essence under a construction contract, the employer is entitled to terminate the contract immediately upon the contractor failing to complete by the contractual completion date. If time is not of the essence, the employer may not terminate regardless of the length of the contractor's delay.
Will time be of the essence in the absence of a contractual term stating that it is?
Generally time will not be of the essence under a construction contract unless the contract expressly makes it so. The JCT, ICE and NEC contracts do not express time to be of the essence. The (very rare) exception is where the subject matter of the contract or the surrounding circumstances require time to be treated as of the essence. However, the mere fact that it is of great importance to the employer that the contractor completes on time does not, of itself, make time of the essence.
Will time be of the essence simply because the contract states that it is?
Time will be treated as of the essence if a construction contract:
• states that it is; and
• is silent as to what the employer’s remedy will be in the event of the contractor being in culpable delay by failing to complete by the contractual completion date.
The position is, however, uncertain if a construction contract:
• states that time is of the essence; but
• goes on to provide that the contractor is to pay the employer liquidated damages in the event of it being inculpable delay.
The reasoning behind the proposition that time will not be treated as being of the essence notwithstanding that the contract states that it is of the essence is the inference that the parties have agreed that liquidated damages (and not termination) will be the employer’s remedy for late completion.
Whilst this proposition is supported by nineteenth century caselaw, a judge in the Court of Appeal in more recent times (1970) did state that the employer would have had the right to terminate such a contract immediately upon the contractor failing to complete on time, hence the uncertainty.
Can time be made of the essence by the employer giving notice?
Yes – A notice making time of the essence may be given by an employer after the contractual completion date has passed.
For such a notice to be valid, it must:
• be given at a time when it was reasonable for the contractor to have completed; and
• specify a reasonable period of time for the contractor to complete.
Whilst there are no hard and fast rules to determine whether or not such a notice satisfies these ‘reasonableness’ tests:
• the notice must be given at a time by which the contractor had sufficient time to carry out any additional work instructed after the contractual completion date; and
• a reasonable period of time for completion is judged at the time the notice is given in the light of all the circumstances.
Does time being of the essence mean that the contractor has to maintain any particular rate of progress?
No – But there are of course ways of placing the contractor under an enforceable contractual obligation to maintain a specified rate of progress, including:
• sectional completion provisions;
• a requirement to meet ‘key milestone dates’; and/or
• a requirement to proceed ‘regularly and diligently’ with the works.
Please note: These key points are only intended to give general guidance and are no substitute for specific legal advice on any given situation.