What is a Construction Delay Claim?
As the name would suggest, construction delay claims arise out of a construction project where work has not proceeded pursuant to the schedule. Work has either been extended, compressed, or accelerated due to circumstances that were not anticipated when the parties entered into the construction contract. Although there are many causes of construction delays, the most common causes of delays are differing site conditions; changes in requirements or design; weather; unavailability of labor, material, or equipment; defective plans and specifications; interference by the owner, and the failure of the owner to approve changes. Construction delays will often force a contractor to extend its schedule to complete the work required under the contract and result in additional costs.
The Critical Path Method
The Critical Path Method (CPM) is the most widely accepted method for evaluating project delay/disruption claims The CPM is a mathematically based formula for scheduling a set of project activities.
A CPM schedule analysis can establish:
- The duration of the project
- The earliest and latest that project activities can start and finish without delaying/disrupting the project
- Which activities are “critical,” meaning they must be completed on schedule, or else the entire project will take longer
- Which activities are not critical, meaning they can be performed simultaneously with other work and/or other activities do not depend on their completion.
- Whether or not it is cost-effective or possible to accelerate the completion of a project
Although there are numerous ways to approach a delay claim analysis, they tend to all be after the fact, based on a combination of historical data, assumptions, and estimates. Whether damages are available for the delay depends on additional considerations such as who is responsible for the delay.
excusable delays v. non-excusable delays
For the contractor to have a right to be compensated for delays, the contractor cannot be responsible for the delays. Examples of excusable delay include design errors and omissions, owner-initiated changes, changed conditions, unanticipated weather, and acts of God.
In contrast, a non-excusable construction delay is a delay for which the contractor has assumed the risk under the contract. For example, if materials ordered by the contractor are not timely produced the contractor is typically responsible since it contracted with the material supplier. Disputes may arise over whether a delay that appears to be excusable was contractually the responsibility of the contractor if it was foreseeable, or it was caused by the contractor’s own actions.
Compensable v. Non-compensable delays
Delays may be further classified into compensable and non-compensable delays. If a delay is compensable, the contractor is entitled to recover compensation for the costs of the delay in addition to time extensions to complete the project. Most contracts will include classes of delay which are compensable, such as changes required by the owner. The contractor is generally responsible for the negligent acts or untimely performance of its subcontractors. However, if the subcontractor has a direct contractual relationship with the owner of the project, the contractor most likely will be able to recover damages. The analysis requires an examination of the privet of the contracts.
What Damages Can A Contractor Recover?
Lost time is lost money. When a project extends beyond its anticipated completion date, costs begin to accumulate. Such costs may include the costs of maintaining an idle workforce and equipment; unabsorbed office overhead; cost efficiencies; and general conditions. Common damages available to a contractor for delays include:
- Project supervision costs
- Extended general conditions
- Temporary facilities such as toilets, job site trailer rental, site power, and water
- Liability insurance
- Equipment rental costs
- Equipment maintenance
- Field labor if the scope of work is increased as a direct result of the delay
- Increased material costs
- Lost productivity caused by the delay due to disruption and inefficient task sequencing
- Hourly labor rate increases due to longer duration of the project
- Demobilization and re-mobilization expenses for extended delays
What damages can an owner recover?
Project delays that are the fault of the contractor will entitle the owner to damages. Many sophisticated owners use contracts with liquidated damages with a per-day cost for delays. Most common commercial construction projects such as the AIA contracts include optional provisions for liquidated damages such as:
The Contractor and the Contractor’s surety, if any, shall be liable for and shall pay the Owner the sums hereinafter stipulated as liquidated damages for each calendar day of delay until the Work is substantially complete: ________ ($__).
The existence of a liquidated damage provision makes the damage calculations much easier. In the absence of such a provision, the owner must prove actual damages. Common owner claims would include:
- Owner’s project management and supervisory expenses
- Project-specific overhead expenses
- Loss of use
- Lost rents
- Lost profits from a business not opening
- Project-specific insurance costs (i.e. Builders risk)
- Construction loan interest expenses
- liquidated damages
Experts: don’t go to court without them
The damages available are ultimately dependent on the unique facts of every situation. In most commercial construction cases, expert testimony would be necessary to establish a delay claim. The experts will typically examine the CPM and determine the cause and length of the construction delay and the damages caused by the delay.