Owners and delayed completion: Your MBA Contract and the risks associated with extensions of time

Owners who sign standard form building contracts by the Master Builders Association (MBA) need to understand how extensions of time work. 

Most MBA contracts contain clause 19(b). Clause 19(b) says as follows: 

“No later than the date of Practical Completion, the Builder must notify the Owner in writing stating the cause and extent of the delay. If the Owner disputes the Builder’s entitlement to any extension of time, the Owner may refer the dispute for resolution under clause 31. If the Owner does not dispute the extension of time in writing within 5 Working Days after receiving the Builder’s notice, the date for Practical Completion is extended by the amount in the Builder’s notice.”

The five-day limitation period to dispute an extension of time within clause 19(b) raises questions about contractual fairness. Clause 19(b) creates a pitfall that gives owners a small window within which to dispute a claim for extension of time. Five days might not sound like a big deal to an owner when a delay seems minor or inconsequential. However, claims extensions of time tend to compound over time. A few days here and there quickly turn into months. Unfortunately, some owners (who may not have received legal advice) might not know about clause 19(b) or what it means. If clause 19(b) is in your contract, then you might be at risk if your builder has taken an unusually long time to complete your home.

So, what do you do if your builder has delayed the completion of your build, and you haven’t disputed any of the extensions of time within five working days of receipt? 

There’s an argument that an extension of time is void if it doesn’t comply with the contract. 

The contract says at clause 19(a):

“If the progress of the Works has delayed by any of the following causes or conditions resulting from the causes: [sub-clauses (i) to (xi) are omitted for brevity] the Builder is entitled to an extension of time in which to bring the Works to practical completion.”

Relevantly for the purposes of this article, some of the most commonly seen delaying events in sub-clauses (i) to (xi) include:

(iii) inclement weather or conditions resulting from inclement weather;

(x) unavailability of labour, transport or materials.

The argument is that a builder only becomes entitled to claim an extension of time (and benefit from the five day time bar) if a delaying event in sub-clauses (i) to (xi) actually occurs. In other words, if a builder can’t prove that a delaying event occurred, then it can’t rely on the five-day time bar within clause 19(b). 

To put it differently, for the five-day time bar to apply, we argue that the builder must first show that a delay actually occurred under clause 19(a) and that it gave notice under clause 19(b). In the context of a legal dispute, this means the builder is still put to proof of its claim for extension of time, even though the owner may not have disputed the extension of time within five working days of receipt. Where the delaying event did not occur, then the builder was not entitled to claim the extension in the first place. If the builder can’t prove the delay happened, then the notice is void from the start and builder can’t rely on the owner's failure to respond within five days.

We argue that if a delaying event didn’t actually occur, then the builder puts its proverbial cart before the horse. If accepted, that approach would allow builders to rely on fabricated extensions of time to extend the contracted date for practical completion. We argue that the MBA contract never intended for any builder to rely on void extensions of time. The above would lead to a perverse commercial outcome where builders can extend the contracted date for practical completion by relying on fabricated claims for extensions of time, regardless of whether there was a real delay. 

The above contention is supported by Vadakkumkaraputhaveedu v Kulowall Construction Pty Ltd [2023] WASAT 29 (Kulowall) where the State Administrative Tribunal (the Tribunal) held at paragraph 30 that, for a notice of extension of time to be valid, a Builder claiming extensions of time is required to support the claims by giving written notice “supported by adequate evidence of the cause and extent of the delay”.

Further, in paragraph 35 of Kulowall, the Tribunal held that:

“It is however incumbent on the builder who seeks an extension of time, to provide to the owners and to the Tribunal cogent evidence of the link between the general state of the building industry and actual delays that affect the dwelling the subject of the proceeding. The Builder cannot rely on the general situation of the building industry without addressing the specifics of how the contractual relationship between the builder and client is affected by those circumstances.”

In Burnett v BCG Construction Pty Ltd, complaint 016264 (Burnett), it was held:

“A second issue concerns the period within which a Builder should notify the Owners of a delay. It has to be within a reasonable time… it is usual to hold that the action must take place within a reasonable period. Under clause 20 an Owner has 10 working days i.e. 2 weeks in which to select a different material from that specified where it is not available. That is as good a guide as any as to what would be considered under the contract to be a reasonable time for notification.”

The above cases of Kulowall and Burnett are authority for the argument that builders should properly justify their claims for extensions of time by reference to contemporaneous evidence which links the cause with the extent of the delay and further requires builders to claim their extensions of time within a reasonable period of time after the delaying event. We argue that the five-day time bar goes against the intent of Kulowall and Burnett, and that builders should not be excused from defending a claim for extensions of time purely because an owner has taken longer than five days to dispute the claim.

There’s also an argument that clause 19(b) is an unfair contract term under sections 23 and 24 of the Australian Consumer Law (ACL).

Under the ACL, the standard form MBA contract would be regarded as a “consumer contract”. It would also be regarded as a “standard form contract”. The argument is that clause 19(b) creates a significant imbalance because it gives the builder an unfair advantage over the owner. Further, we argue that clause 19(b) is not reasonably necessary to protect the builder’s interests, because a builder who submits a valid extension of time claim should receive the benefit of the extension of time, irrespective of whether the owner disputed it within 5 working days. 

The above also raises a further consideration, that is, an owner might not have the information available to properly assess the claim for extension of time. The builder’s need for an extension might only become apparent several months later, and the owner may not be in a position to properly decide whether to dispute the extension of time at the time it is claimed. 

For example, a builder may delay pouring a concrete slab due to a contractor’s delay in supplying pre-mix concrete. The builder only issues an extension of time notice three weeks later, after the slab is poured and the full extent of the delay is known. By then, the owner has no real-time insight into whether the delay was caused by supply issues, scheduling decisions, or other factors. Yet the owner still has only five working days to dispute the notice, despite having limited information to assess what actually caused the delay.

The argument goes further that clause 19(b) causes detriment to owners, who are usually the weaker party in the bargain. Most owners have no choice but to sign the contract as presented. This is known as a contract provided on a “take it or leave it” basis. Owners might be unable to negotiate clause 19(b) out of the contract. The above gives the builder the upper hand in the bargain. Ultimately though, whether clause 19(b) is unfair depends on the facts, but it nevertheless raises legitimate concerns about contractual fairness.

If you’re an owner who has received a claim for an extension of time, the best thing to do is to dispute it immediately, even if it is not possible to properly assess whether the claim is legitimate. The MBA contract doesn’t explain what the owner must do to dispute an extension of time notice. But it’s probably enough to respond and say, “I dispute this extension of time notice,” and give a reason. Owners should act quickly. If your project is delayed and you don’t dispute the builder’s claim for extension of time, you are at risk of losing the right to claim delay damages. 

Delay damages are losses caused by the builder’s delay in completing the works within the contractually agreed period. Delay damages include rent you pay to a landlord during the delay period, interest you pay to your lender during the delay period, council rates and taxes, and utility costs you have to pay during the delay period. You might also be entitled to damages for loss of amenity, distress and inconvenience. In many cases, owners suffer loss and damage by reason of the builder’s delay of up to $100,000 or more. 

If you’re an owner and your build has been delayed under an MBA contract, you need to understand the risks. Clause 19(b) can work against you if you don’t act in time. You must dispute an extension of time within five working days of receiving it, even if you aren’t sure yet whether the claim is valid. By disputing a claim for extension of time immediately, you preserve your right to claim delay damages later. 

If you have received a claim for extension of time from your builder, contact Vogt Legal immediately. We can help you prepare a written dispute against the extension of time and advise you on what to do next. We can also help you assess whether you have a feasible claim for delay damages. We offer a free 15-minute consultation.

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