Penalties for Delay Under Omani Construction Contracts

Considering that construction projects are characteristically very complex, project delays are, at times, to be expected. However, contractors must be wary that a penalty may be levied if the contractor fails to complete its full scope of works by the agreed-upon project milestones / completion date if the contractor is responsible for the delay.

This article will explore: (i) the delay penalty amount that may be levied on contractors under the Standard Documents for Civil Building and Engineering Works of 1981 (the “Standard Conditions”); and (ii) how a delay penalty may be reduced or limited by a contractor.
Penalties under the Standard Conditions

Clause 47 of the Standard Conditions provides that a penalty for delay may be applied to a contractor for each day in which the project remains incomplete past the completion date, as set out in the parties’ “Appendix to Tender.” It is common for parties to agree in the Appendix to Tender that any delay penalty will be in the sum of 0.1 percent of the contract value per day, with a maximum penalty of 10 percent of the contract value.

However, Clause 47(2) of the Standard Conditions places an important limitation on a penalty for delay. Clause 47(2) provides that any delay penalty may only apply to the portion of the works that remain uncertified by the Engineer. Thus, for example, if 70 percent of the works are certified as complete by the project Engineer as at the completion date, then a penalty for delay may only apply to the outstanding 30 percent.

If  necessary, Contractors should consider seeking a Clause 48(2) or  Clause  48(3)  Substantial
Completion Certificate

If a contractor is genuinely concerned that it will not be able to complete its full scope of works by the contract completion date, a contractor may wish to consider requesting the Engineer to issue a Clause 48(2)/(3) Substantial Completion Certificate in respect of the works that have been completed by the contractor as at the completion date.

Clause 48(2) states that the contractor may request, and the Engineer may issue, a Certificate of Completion for “…any section of the Permanent Works [or] any substantial part of the Permanent Work which has been both completed to the satisfaction of the Engineer and occupied or used by the Employer.” Further,  Clause  48(3)  provides  that  “if any of the Permanent Works have been substantially completed…the Engineer may issue a Certificate of Completion in respect of that part of the Permanent Works before completion of the whole of the Works.”

Accordingly, a contractor should assess in advance whether it will be able to complete the works by the completion date. If it is unable to do so, then it should consider seeking a Substantial Completion Certificate in respect of the completed works in order to limit a potential delay penalty to only the works that remain outstanding past the completion date. Obviously, contractors should also consider whether there are grounds on which to request an Extension of Time, and this is a topic that we will examine in detail in a future article.