Construction Contract Time is of the Essence Clauses
Major construction projects, and many smaller projects, rely on American Institute of Architects (“AIA”) documents, which are the most widely used standard form contracts in the construction industry. They facilitate communications among all the parties involved in construction, which makes it easier to produce a high-quality project in a timely and economical fashion. Below you will find important information about construction contract time is of the essence clauses.
AIA Document A101-2017 is a standard form of agreement between the owner and the contractor for use where the basis for payment is a stipulated sum (fixed price). The document adopts by reference AIA Document A201-2017, General Conditions of the Contract for Construction. Although A101-2017 makes no reference to time being for the essence, A201-2017 provides at §8.2.1:
Time limits stated in the Contract Documents are of the essence of the Contract. By executing the Agreement, the Contractor confirms that the Contract Time is a reasonable period for performing the
Section 8.1.1 defines “Contract Time” as:
Unless otherwise provided, Contract Time is the period of time, including authorized adjustments, allotted in the Contract Documents for Substantial Completion of the Work.
Accordingly, it would appear the “time is of the essence” clause is directed solely to the time allotted in the contract, including authorized adjustments, to bring the project to Substantial Completion, although generically referencing “time limits stated in the Contract Documents.” It does not make reference to §§ 2.3 (owner’s right to stop the work); 2.4 (owner’s right to carry out the work); 3.3.6 (strike resolution); 3.7.4 (disclosure of concealed or unknown conditions); 3.9.2 (furnishing name of proposed superintendent); 3.15.2 (owner reimbursement for clean-up), or any of the other provision that have a specific amount of time for performance.
Although a “stock” clause in AIA Document A201-2017, a “time is of the essence clause” is not necessarily a “stock clause” and a generic or cryptic attempt to generally cover all matters will likely not be enforceable. As with any contract, AIA Document A201-2017 is subject to modification, just as AIA Document A101-2017 is subject to negotiation and modification. A contract is not a contract until it is signed by all parties to be charged. An inclusion of the clause in the contract should also identify the performance(s) or event(s) to which the clause is directed.
A “time is of the essence” provision in an agreement can be waived by the conduct of the parties subsequent to the agreed upon performance or event date, generally by post-deadline communication or course of dealing. However, be mindful that repeated extensions of the performance or event do not amount to a waiver of the clause, simply a new deadline for performance, as with changes and revisions to a construction schedule. Patience and forbearance will not constitute a waiver. Failing to include a “time is of the essence” clause will result in a “reasonable” time for performance standard, subject to interpretation.
Careful drafting of the “time is of the essence” clause can result in significant benefit. Time for performance of construction items, particularly critical path items, that advance the project to Substantial Completion should be specifically referenced, as a failure to perform would constitute a breach of the contract. Time for performance of such matters like objections to back charges or notification of price increase for design changes should be designated as waived unless there is timely compliance. Specific reference to essential time requirements will more likely result in recognizing the intention of the parties in the event of a dispute, whether arbitration or litigation. Enforcement of the clause is essential in the event of a default, as post-default activity can result in a waiver of the rights of enforcement of what was originally intended as an essential element of the contract.
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Written by: William Cobb