Penalty for delay in Government Construction Contracts

Government contracts contain more stringent provisions than other contracts, whether in the stage of tendering, execution, or termination of the contract. These provisions include the delay damages imposed by the administrative body on the contractor who delays the execution. In this article, we will discuss the most important aspects of the delay damages in government contracts as well as cases of exemption and forfeiture of these delay damages.

The administrative body imposes delay damages on its own without the need to prove the harm or issue a court ruling.

The administrative body has the right to impose the delay damages provided for in the contract on its own without the need to resort to the court, merely on the occurrence of the violation even if there is no damage. Furthermore, the administrative body is not obliged to prove such harm and the contractor cannot dispute the administrative body’s entitlement to all or part of the delay damages on the grounds that the harm has not occurred or that the delay damages provided for in the contract are overestimated to an extent that they are not appropriate with the value of the actual damage. That is because the delay damages provided for in the administrative construction contracts differ in their nature from the penalty clause in civil contracts, as the delay damages aim to secure that the party contracting with the administrative body performs his obligation on the agreed date to ensure that the facility proceeds regularly and steadily.

In appeal No. 45, the Administrative Judiciary Court ruled that the delay damages shall be imposed on the contractor according to the decision of the Engineer merely because of the delay of execution of work without the need to prove the resulting damage. The Court stated that the purpose for enacting such procedures and rules was to secure public facilities and ensure their proper functioning regularly and steadily.

Delay damages must be stated in the construction contract.   

Delay damages must be stated in the construction contract in order to be imposed on the contractor who delays the execution of work because the Omani Law does not contain any provision allowing the government body to impose delay damages in government construction contracts, unlike the legislation of some countries such as the Tenders Law in the United Arab Emirates. Although the Standard Form of Agreement and General Conditions of Engagement for Building and Civil Works, which is adopted by the Ministry of Finance, provides for the delay damages, the government bodies do not apply the Standard Form of Agreement in all their contracts.

The Appellate Circuit of the Administrative Judiciary Court determined in the two appeals (287 and 290) that the government body may not impose delay damages on the contractor because the contract did not provide for them. The Court stated that the delay damages constitute a form of consensual compensation which must be determined in advance. 

The delay damages include the total value of the tender in addition to the value of the variation orders and the additional works.

The total value of the tender in addition to the value of the variation orders and the additional works must be included when delay damages are calculated. The Administrative Judiciary Court determined in the two appeals (721 and 779) for the judicial year 15, that the administrative body calculated the delay damages based on the price of the original tender while it must have calculated based on the total value of the tender in addition to the value of the variation orders. The Court concluded that the administrative body was entitled to the difference in the amount of the delay damages.

The administrative body may not impose delay damages after receiving the works.

If the administrative body receives the works awarded to the contractor, even temporarily, it may no longer impose delay damages. This act on the part of the administrative body indicates that the papers prove that the initial delivery of the works included all the contracted works. In the two appeals (No. 985 and No.1093) for the judicial year 15 the Administrative Judicial Court determined that “after its temporary receipt of the works awarded to the contractor, the contracting administrative body is not allowed to impose delay damages on the contractor. This cannot be undermined by the argument that the temporary delivery was not carried out with sufficient accuracy.”

Cases of exemption from delay damages.

The party contracting with the administrative body shall not be exempted from the delay damages unless he proves that the breach of his obligation is due to a force majeure or the act of the administrative body contracting with him, or if this administrative body appreciates his circumstances and decides to exempt him from the effects of his responsibility for the delay in performing his obligation. 

Among the examples that the contractor cannot be held responsible for the delay damages due to the administrative body’s responsibility for the delay, is what the Administrative Judicial Court mentioned in the Case No. (4) of (6) JY when it decided that the administrative body refused to take over the works on the grounds of a dispute over plastering and painting works. The Court stated that it was proven to it that the contractor was not responsible for these works, and therefore the delay damages may not be imposed on him. The same result was determined by the Administrative Judicial Court in the two appeals (No. 985 and No.1093) for the judicial year 15.

The Conclusion

Imposition of delay damages in contracts concluded by government bodies does not require evidence that the damage has occurred, as the damage itself is supposed to have occurred once the delay happens. This is because the delay deprives the beneficiaries of the benefits expected from these government public utilities, given that government contracts are based on the idea of public utilities.

 

Ali Al Rashdi

ali.alrashdi@sandalaw.om

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