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Delay claims: Is time money?

The single most common, and often most expensive, problem encountered on any construction project is delay. Delays are not really the problem, they are just the measured effect of the problem. And, some delays, in and of themselves, may not seem to be an issue, but individual task delays can impact productivity and create a domino effect on the critical path.

When the magnitude of these seemingly insignificant delays compound, so do the related costs. The end result is delays eating up project profits. Good contracts don’t prevent delays. Aside from having an accurate set of plans and specs included in your contract documents, don’t expect your contract to help you prevent delays. The real impact of a delay is only known once the additional time is combined with the additional costs, and proving either can be very complicated. A full analysis is much more complicated than just comparing as-built schedules with the original as-planned schedules.

Knowledge and experience are required in areas such as accounting, project management, scheduling, estimating, methods, and efficiency analysis, and often a hired professional expert is needed to assist with the analysis. Look early and often for potential delays. Sometimes, the delay problem can manifest itself from the beginning. Many potential delays can be anticipated early through the use of well-planned, detailed schedules. Failure to address scheduling issues at the beginning is a major mistake, unreasonable time requirements will not work themselves out during construction.

After a project begins, once a delay is suspected, you should maintain complete documentation of all activities that may be affected and continue to update the schedule. Also, keep detailed information of the impact of the delays on other tasks and labor costs and efficiencies. As we have noted in past articles, all things equal, the party with the better documentation usually prevails in case of a dispute.

Typical owner delay damages: liquidated damages- used when actual damages will be difficult or impossible to ascertain and, thus, a specific sum of money is listed in the contract for each day the project is extended past the promised completion date. Liquidated damages are not considered as a punitive (punishment) tool, but it isn’t unusual to hear owners threatening to assess them to extract some additional performance from a contractor. What Contract terms, no matter how favorable to you, cannot immunize your project from delays. Even though the contract can’t prevent delays, once there are delays, the lawyers some out in droves to analyze the contract to determine who will be responsible for the resulting costs. The reality of construction is that projects require careful monitoring and a hands-on approach throughout the project to keep it running smoothly. Planners, project managers and field superintendents are all instrumental in minimizing delays.

Proving damages due to delays is often not easy. Last week we discussed CPM (critical path method), and how it is important in project planning. Once delays are an issue, CPM can assist in convincing the court that there were delays and what tasks caused them, but CPM only provides part of the delay equation. CPM measures time, not costs. What the contractor often does not realize is that liquidated damages are often less than the actual damages that an owner could incur for a delay.

Actual damages-used when no liquidated damages clause exists, such as:

(1) Owner’s project management and supervisory expenses
(2) Project specific overhead expenses
(3) Loss of use
(4) Lost rents (if building is intended to be released)
(5) Lost profits from a business not opening
(6) Project-specific insurance costs
(7) Construction loan interest expenses.

Typical contractor delay damages:
(1) Project supervision costs
(2) Extended general conditions
(3) Jobsite trailer rental
(4) Temporary facilities such as toilets, fencing telephone, site power and water
(5) Liability insurance
(6) Equipment rental costs
(7) Equipment maintenance
(8) Field labor if the scope of work is increased as a direct result of the delay
(9) Increased material costs
(10) Lost productivity caused by the delay due to disruption and inefficient task sequencing
(11) Hourly labor rate increases due to longer duration of project
(12) Demobilization and re-mobilization expenses for extended delays.

Sometimes, it may seem like short delays here and there do not impact the project cost, so you may not want to take the effort to keep track and provide notice of the delay. But, the reality is that minutes turn into hours, and for a crew of four workers, one 15-minute delay equates to one labor-hour of lost productivity. Thus, that 15-minute delay probably just cost you $75 in lost labor. To get compensated for delays, we are assuming an inexcusable delay by the other party. But, sometimes events happen that cannot be anticipated by either party and these should be addressed in a contract, for example acts of god, riots, strikes, and force majeure. When this happens, each party usually must bear its own cost of the delay. Often delays are unavoidable, but the best defense is to anticipate problems, document the impact and look for ways to adjust the schedule to possibly make up the time if the delay is on the critical path.

If you have a construction question, submit it to: info@construction-laws.com
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Disclaimer The information in this article is based upon California law and is for general information only. Any information or analysis presented here is intended solely to inform and educate the reader on general issues. Nothing presented or referenced to, regarding facts, documents or applicable laws, constitutes legal advice. Before acting or relying on any information, including any information presented here, consult with a qualified attorney for your specific situation.

Scholefield, Esq., holds an active PE license in Colorado, an undergraduate engineering degree from the University of Florida, and received her JD from the University of San Diego. Source Code: 20080314tca

 

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