Contractor: Is time on your side?

As a contractor, you know that time is generally not on your side---time is money. You plan projects and allocate overhead based on projected schedules. If the schedule busts, then so does your bottom line.

It is amazing, though, how many contractors will suffer compensable delay on a particular project and fail to realize the actual monetary loss. These contractors fail to analyze to what extent their bottom-line was affected by time delays. The calculable costs resulting from delay can be quite significant.

The law recognizes the inherent value of time in the construction industry, and if you proceed correctly, you may be generously compensated for lost time resulting from, among other things, delayed approval of submittals, defective contract documents and unforeseen conditions. Furthermore, even if your performance was not delayed, you may be entitled to disruption damages or, if forced to accelerate, for costs attendant with the acceleration.

The Delay Claim

For a contractor to recover additional costs from an owner due to delay, the delay must have been critical, excusable and compensable.

A critical delay is one which affects the critical path of the job---that is the longest, uninterrupted chain of activities within the project's schedule. Some delays are not critical delays extending the overall completion of the project, because they are absorbed by the available float in the schedule or run concurrently with the critical path. (As will be discussed, if the owner's disruption causes extended duration of a non-critical activity, the contractor may possibly recover disruption damages).

Excusable delays are delays which are not contractually the responsibility of the contractor---those for which the contractor could not be terminated for default for failing to perform within the original contract schedule or be subject to liquidated damages. As a general rule, an excusable delay is one arising from unforeseeable causes beyond the contractor's control and without its fault or negligence. Examples include: act or neglects of the owner, such as delay in approving shop drawings, improper inspection, late or defective owner-furnished property, defective plans and specifications; act of God; unusual or severe weather (compared with 5 to 10 year patterns); strikes, etc.

Finally, the delay is compensable if:

  1. the contract language does not prohibit recovery of compensation or money damages for delay;
  2. the contractor did not concurrently cause the delay; and
  3. the contractor can quantify its damages with reasonable certainty.

The Disruption Claim

Disruption is the material alteration of the performance conditions that were expected at the time of the bid resulting in an increased difficulty in performance. A contractor is entitled to reasonably assume that owner-furnished documents are accurate, that the owner will not interfere with the performance of the contractor's work, that the contractor will be given reasonable access to the job site in order to perform its work, and that the contractor will not be subjected to unreasonable interference by other contractors. Absent information to the contrary, the contractor is entitled to plan the job to optimize its profits and to expect reasonable opportunity to work as efficiently as possible.

A claim for disruption is distinguished from the claim for delay in that the contractor need not prove that the completion date was affected in order to assert a disruption claim. The impact of disruption on performance is often a loss of productivity and increased costs, although the overall time of performance itself may not necessarily be extended as a result of the disruption. A contractor who utilizes its own labor and equipment to perform the work as opposed to a general contractor or construction manager who mostly supervises, can accrue substantial disruption damages. Additionally, a "no damages for delay" clause will not normally preclude recovery for disruption damages. Root causes of disruption include the owner's stopping and staring a project, differing site conditions, excessive changes, owner directed out-of-sequence work, overzealous inspections, improper inspections, changes in plans and specifications, damage by other contractors, defective drawings, and directed changes in means and methods.

The Acceleration Claim

Acceleration is the process by which the ordinary and expected progress of events in a construction contract is hastened. Acceleration occurs when the contractor performs work at a faster rate than required by the original contract.

There are two types of compensable acceleration, direct acceleration and constructive acceleration. Direct acceleration occurs when the contractor is ordered by the owner to complete the construction project ahead of the contract completion date (including agreed time extensions). Constructive acceleration occurs when the owner denies the contractor's claim for a justified time extension and requires the contractor to complete the project by the contract completion date. Acceleration is not compensable where the contractor accelerates its performance rate voluntarily for its own purposes.

Conditions prevalent when accelerating which leads to extra costs include the re-sequencing of work activities, increasing the number of crew and crew sizes, working overtime, adding shifts, adding extra equipment and expediting material and equipment deliveries.

The Claim Presentation

To be successful, a claim for delay, disruption and/or acceleration must persuasively set forth the facts underlying the claim and the technical and legal justification for compensation. As general rule, the claims is structured to present clearly and concisely a discussion of information regarding:

  1. the contractual relationship;
  2. a description of the project and of major installations of various trades;
  3. key physical characteristics and keys to successful construction;
  4. an overview of planned verses actual performance;
  5. an analysis of items causing increased costs;
  6. a detailed schedule impact analysis of major substantive claim items;
  7. a discussion and analysis of the relevant legal principles; and
  8. a statement and analysis of damages.

One of the most important parts of the claim is the proper identification and quantification of the damages. Items of damages can include escalation of labor and material costs, idle labor, idle equipment, home office overhead impact, increased insurance costs and bond premiums, increased costs of performing during adverse weather conditions, loss of productivity, subcontractor's claims, demobilization/ remobilization, lost profit, interest, increased equipment and material costs, overheard, extra shifts and crews, added supervision, added equipment, expedited material, and delivery costs, etc.

Both the contractor's attorney and claims consultant will work closely together to fashion a presentation which is persuasive both in factual analysis and law. From the legal standpoint, it is important for the attorney to understand relevant issues, including notice issues, contractual issues, state or federal regulations where applicable and delay issues. The claims consultant must obtain a clear understanding of the contractor's as-planned schedule, must confirm and develop the as-built schedule, compare the as-planned with as-build, develop a "what would have been" schedule, and provide a persuasive analysis of the delays or other factual issues.

The claim presentation must provide the decision-maker---whether it be contracting officer, judge or arbitrator---with a complete package and will all necessary supporting data. While the presentation should portray the conditions in the best light to the contractor, the presentation should admit and take into account the contractor's own problems that had significant effect on the project. The alternative could be a disaster if the contractor's credibility is shattered at a hearing or trial. Finally, the presentation should reflect pricing which is based upon actual cost records and which could survive an audit.

The contractor is best served by involving an attorney and claims consultant from first notice of problems because, historically, early involvement of these professionals has prompted quick and favorable settlements. This is particularly important with issues of notice and time restrictions applicable to filing a claim, which if not properly followed will defeat the claim. If professionals become involved earlier rather than later, even if settlement does not result, the contractor is in much stronger position and can prepare the claim at reduced cost.

Conclusion

If you skillfully present a meritorious claim, you will likely receive a substantial award for delay, disruption or acceleration. Always be aware that the claim route is available to turn a problem project into a winner.

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*Brian S. Jablon, Esq., is a member of the law firm of Smith, Sommerville & Case, L.L.C., where he represents, contractors, subcontractors and suppliers in construction disputes, including state and federal contract claims, mechanic's liens, bond claims, and other commercial matters. Mr. Jablon is a member of the Construction Specifications Institute and the ABA Forum on Construction Industry, and his firm is a member of Associated Builders and Contractors, Building Congress of Baltimore and Homebuilders Association of Maryland.

**William N. Colonna, III, Esq., is a claims and construction consultant representing contractors, subcontractors and sureties. Mr. Colonna' consulting services include all aspects of construction management and claims consulting, from initial identification through claim preparation and ultimate resolution of the claim. Mr. Colonna was formerly an attorney in the Construction Law Group at Smith, Sommerville & Case, L.L.C. Mr. Colonna's construction experience was gained after completing a B. S. in civil engineering and as a Project Manager for the ENR Top 50 Contractor.

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