By Don Owen

                                                       Copyright  © 1997 Donald Owen & Associates, Inc.

 

To a contractor, being run over by a Mac truck is only a minor inconvenience when compared to being delayed on a construction project. 

 

Bad weather, owner caused delay, defective plans, lack of performance by subcontractors, and poor planning, are just some of the things that can wreak havoc with the progress of a job.  When delay occurs, every aspect of the job, including the budget, feels its effect.

 

Because of the frequency of delay during construction projects, and because of the devastating effect delay can have on cost, one would think owners and contractors would be highly skilled at identifying, avoiding, controlling, and measuring, the impact of delay.  This is not always the case.  In fact, contractors and owners who are experts at identifying and managing the effects of delay are the exception in the construction industry, rather than the rule.

 

To a contractor, there are at least a thousand ways delay can impact a project.  The one thing these impacts have in common is that they all cost money.  Field and home office overhead can cost from five hundred to ten thousand dollars for each day of delay.  Work that was to be performed in good weather can be pushed into bad weather and double or triple the cost of labor.  Starting and stopping a given task can greatly reduce labor productivity, and lower worker morale.  Material and labor costs can escalate.  Production windows for critical fabricated materials can be lost and contribute to further delay. 

 

Both owners and contractors need to be highly aware of potential impacts a delay may cause at the time it is first suspected a delay may occur.  Often, owners and contractors do not go to the lengths necessary to prevent or minimize delay, when it first becomes apparent, because they have not thought through the possible consequences of the delay.

 

After becoming aware of a delay, and recognizing the potential impacts, the prudent owner or contractor will determine who is responsible for the delay.  From the perspective of identifying responsibility, there are three categories of delay in government contracting, those being; 1) excusable delay, 2) inexcusable delay, and 3) compensable delay.

 

Excusable delay is delay for which a contractor is entitled to a time extension but no monetary compensation.  This category of delay is considered to be outside the owner or contractor’s control and is sometimes referred to as “acts of God”.  Examples of excusable delay might be unusually adverse weather, or a nation wide transportation strike. 

 

But sometimes, God gets blamed for delay that really is not his fault.  Only weather that is abnormal for the period of time, and could not reasonably have been anticipated, is grounds for a time extension.  So how do you decide what weather is abnormal and what weather is within the realm of what is normally to be expected?  One method is to use information gathered by the Corps of Engineers that estimates the number of adverse weather days that can be expected for various locations throughout the United States.  This information estimates the number of days for each month, in various locations, that you might expect adverse weather to prevent work on critical activities.

 

Delay for which the contractor is at fault, or has assumed the risk, is called inexcusable delay.  Inexcusable delay is delay for which the contractor is not entitled to a time extension or monetary compensation.  Examples might include delay caused by: untimely performance of a subcontractor; time expended to correct defective work; or a lack of facilities and equipment needed to perform the work.

 

Compensable delay is delay for which the contractor is entitled to both a time extension and an increase in the contract amount.  Compensable delay is also known as unreasonable delay.  It is delay that has occurred because of acts or omissions of the owner.  Delay that has occurred because of defective plans or specifications would be an example of compensable delay.

 

It is not uncommon to encounter language in some government contracts that attempts to bar or limit contractors from recovering delay damages resulting from acts or omissions of the owner.  This kind of language is known as “no damage for delay clauses”.  In the state of Washington, since 1979, these clauses are unenforceable.  The language found at RCW 4.24.360 is quite clear.  It says

 

“Any clause in a construction contract, as defined in RCW 4.24.370, which purports to waive, release, or extinguish the rights of a contractor, subcontractor, or supplier to damages or an equitable adjustment arising out of unreasonable delay in performance which delay is caused by the acts or omissions of the contractee or persons acting for the contractee is against public policy and is void and unenforceable.”

 

Often owners and contractors will encounter situations where more than one delay is occurring at the same time.  This is called concurrent delay.  An example would be a period of time when the contractor is being delayed because of a change issued by the owner, and at the same time, the project is being delayed because critical materials, unrelated to the change order, are late in arriving at the jobsite. 

 

When concurrent delay occurs, if the various elements of delay cannot be segregated into distinct areas of responsibility, then neither the owner nor the contractor can recover damages.  This means that the owner cannot collect liquidated damages or terminate a contractor for default because of the delay, and the contractor cannot recover damages related to the period of the concurrent delay.

 

What about when an excusable delay, such as unusually adverse weather, and an inexcusable delay, such as late material delivery, occurs in an overlapping period of time?  In this case, the contractor is entitled to a time extension only for the period of time not affected by the inexcusable delay.

 

In cases where a compensable delay and an excusable delay occur at the same time, the excusable delay will negate the compensable delay.  This means that for the period of time when both types of delay are occurring, the contractor will be entitled to a time extension but not to monetary damages.

 

One argument I often encounter from owners is that if the contractor completes the project by the original completion date, there can be no grounds for delay damages.  In other words, if the contractor finishes ahead of time, he cannot be paid for compensable delay.  This argument is incorrect.  The contractor has a right to early completion of a project, and the owner cannot interfere with his efforts to complete early.  This includes proceeding at a rate that is better than his own schedule.  Any hindrance of this effort by the owner creates a liability for the owner.  This is true even if the contractor has not notified that owner that he intends to finish early.

 

I have been told that, in the world of real estate, the three most important factors in evaluating a piece of property are location, location, and location.  In the world of government contracting, the three most important factors in establishing entitlement to delay are notice, notice, and notice.  Notice requirements vary tremendously from agency to agency and from contract to contract.  Contractors who ignore the notice requirements in their contracts risk losing their ability to recover delay damages.  However, giving proper notice to the owner when delay does occur is only the first step in managing delay.

 

If it has been established that a compensable delay has occurred, it then becomes the burden of the contractor to prove that damages were suffered because of the delay.  One court has said that  “a direct and causal link” must be established between the delay and the increased costs suffered by the contractor.  After establishing this link, the contractor must then quantify the damages.  There are two aspects to quantifying damages; time, and money.

 

To establish entitlement to a time extension the contractor must prove the owner’s actions caused a delay to the completion of the overall project, not just a portion of the project.  The contractor must then establish the specific number of days of delay to the overall project resulting from the owner’s actions.  Vague time periods are not considered proof of delay.

 

To evaluate the monetary damages resulting from delay many factors need to be considered.  These factors include; direct costs of labor and equipment, labor and material cost escalation, impacts to the productivity of unchanged work, increased field overhead, and increased home office overhead.  In cases when a suspension, or partial suspension of work has occurred, it may be appropriate to employ the Eichleay formula to measure unabsorbed home office overhead.

 

Contractors and owners seldom recover all the costs associated with delay even when careful management of delay does occur.  Everyone is better off when delay is avoided.  Owners have substantial ability to avoid delay through careful preparation and review of contract documents before bid, and by responding quickly and effectively to issues that arise in the field that could cause delay.  Contractors can reduce the occurrence of delay by careful planning and ceaseless monitoring of their projects.  They can also reduce the impact that delay has on their profitability by understanding delay, and effectively managing delay when it does occur.

 

Don Owen is a construction management consultant who lives in Indianola, Washington. 

 

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