This blog explores the practice of granting Provisional Extension of Time (EOT) in construction contracts. It answers what is provisional eot and why it is given. Then it examines provisions of standard forms of contracts, government guidelines, and case law on the subject.
What is Provisional EOT?
Since provisions for Provisional EOT are not typically found in standard form contracts, understanding its meaning requires a literal interpretation of the term:
• Provisional: Something arranged temporarily and subject to change in the future.
• EOT: Extension of Time; an additional period allowed for the completion of a particular milestone in a contract.
Thus, Provisional EOT refers to extra time allowed for a contractual milestone that may be revised in the future. Such extensions are often granted with the following stipulation:“The Provisional Time Extension for completion of the work is granted up to [date] to keep the contract alive without prejudice to the terms and conditions of the contract, reserving the department’s right to recover compensation for delay, as admissible.” (GVPR Engineers Limited vs The State of Rajasthan, 2024)
Why is Provisional EOT Granted?
Employers grant Provisional EOT primarily for two reasons:
1. To Keep the Contract Alive
This arises from a common misconception that the contract becomes invalid once the agreed completion date elapses, thereby halting further payments to the contractor.
However, the consequences of failing to perform within the agreed time depend on whether time is of the essence (Section 55 of the Indian Contract Act, 1872).
In construction contracts, where provisions for EOT exist, time is generally not considered to of the essence (Hind Construction Contractors vs State of Maharashtra, 1979).
When time is not of the essence, failure to meet the deadline does not allow the aggrieved party to terminate the contract. Instead, they are limited to seeking compensation for any losses resulting from the delay (Section 55 of the Indian Contract Act, 1872).
Therefore, it is safe to conclude that failure of the contractor to complete the work by the agreed date does not affect the validity of the construction contracts.
2. To Reserve the Right to Levy Liquidated Damages (LD) Later
Employers often examine EOT claims only after project completion.
Contractors’ EOT requests are not examined, and Provisional EOT is typically granted as the completion date approaches.
This practice arises from the concern that if EOT is not found admissible, liquidated damages (LDs) will have to be imposed, which could adversely impact the project’s progress.
Project completion being the top priority, Provisional EOT is granted while deferring the difficult decision on compensation or penalties to a later stage.
Government Guidelines and Standard Form Contracts
1. Public Procurement Guidelines
The Public Procurement Division (PPD) under the Department of Expenditure (DoE), Ministry of Finance is the nodal agency for issuing public procurement-related instructions in India.
In 2022, DoE issued the updated Manuals for procurement of goods, services, and works, in which instructions of Central Vigilance Commission (CVC) were also subsumed. The objective is to have a single source for public procurement guidelines.
While these manuals address EOT, there is no specific reference to Provisional EOT.
2. CPWD Guidelines
The Central Public Works Department (CPWD), established 170 years ago, is a leading authority on construction contracts in our country. Its publications, including contract conditions, rate analyses, specifications, and manuals, are highly regarded. Government entities refer to these resources when developing their own procurement documents, often adopting them in their entirety.
The CPWD GCC stipulates that only requests made by the Contractor within 14 days of the delay-causing event are eligible for an EOT. The Employer is required to respond to the Contractor’s request within 21 days. However, the Employer may grant EOT even in the absence of a request from the Contractor (clause 5: Time and Extension for Delay).
SOP 05/25 accompanying the CPWD GCC stipulates that all extensions of time must include a firm date, based on a due assessment on record. It also specifies that provisional extensions of time are not permitted under any circumstances.
SOP 05/26 stipulates that extension of time is to be decided during progress of work and not after completion of work.
3. FIDIC Conditions
The FIDIC Red Book (1999), widely used by CPSEs, stipulates a 28 days period to the Contractor for submission of notice for any claim including EOT and a 42 days period to the Employer to respond to the Contractor claim (sub-clause 20.1: Contractor’s Claims).
It also provides that the Engineer shall review previous determinations and may increase, but shall not decrease, the total extension of time (sub-clause 8.4: Extension of Time for Completion). Similar provisions are available under other FIDIC publications.
Judicial Decision
In a significant ruling, the Delhi High Court addressed the issue of Provisional EOT in a construction contract governed by CPWD conditions.
The case involved an employer who granted several provisional EOTs to the contractor while reserving the right to levy liquidated damages. After the project’s completion, the employer reassessed the delays, reduced the initially granted EOTs, and levied liquidated damages.
Upholding the tribunal’s award, the Court ruled that the employer cannot treat an already granted EOT as provisional and retrospectively reduce the extension period after it has passed. The employer may grant an extension for a shorter period than requested and thereafter extend it further. But it cannot mechanically grant an extension in the first instance and then reduce the same retrospectively after the period is over.(North Delhi Municipal Corporation vs IJM Corporation Berhad, 2022)
Conclusion
Granting Provisional EOT contradicts standard form contracts and is also discouraged by CPWD and FIDIC. However, the practice persists, primarily to defer until project completion, the decision on compensation and damages for delays. With a judicial ruling against this practice, the time has come to discontinue it and establish robust systems for the timely review of EOT applications.
Disclaimer: This blog is for informational and educational purposes only. The information provided should not be construed as legal or professional advice.