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
• • •
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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