August 21, 2018
Author: Joseph C. Staak
Organization: Smith, Currie & Hancock LLP
I. INTRODUCTION
Disputes involving delayed or accelerated progress of the work are a major source of construction disputes. Time and money go hand and hand on every construction project. Interest rates, inflation and extended field and home office overhead are everyday concerns for owners and contractors. Delays, suspensions, and the acceleration that may be required to overcome them are primary contributors to the cost overruns that plague many projects. Some delays are the result of occurrences beyond the control of either the contractor or the owner. However, many delays result from one party or the other's failure to fulfill its contractual obligations. It is essential for owners, contractors, subcontractors and anyone involved in the construction process to be able to recognize and distinguish among the various types of delays and to understand their rights and responsibilities in each type of situation. This chapter addresses the types of delays that may be encountered and the parties' respective rights and obligations.
II. DELAY AND DISRUPTION CLAIMS
Delay claims are founded on an express contractual obligation to perform by a given date or within a specified timeframe, or the implied obligation in every contract that one party will not delay, hinder or interfere with the performance of the other party. A party to a contract who hinders or prevents performance by the other party, or renders it impossible, may not benefit from that wrong. This rule of law prevents one party from taking advantage of its own contract breaches. The same implied obligation also establishes the legal basis for recovering costs generated by delays, which are the fault or responsibility of one of the contracting parties. Common causes of delays include inclement weather, labor disputes, untimely equipment delivery, defective specifications, changes and differing site conditions. These delays often increase both the time required to perform the contract work as well as the cost of the work.
A. CONTRACT TIME
Most contract documents provide that \"time is of the essence.\" That provision ensures that an owner can recover delay damages for missed milestone or completion dates by making time a material requirement of the contractor's obligation. In the absence of such a clause, a court may decide that delay damages are not recoverable.
1. Important Contract Dates
Obviously, the first thing to consider in assessing a delay claim is the date on which work was to have been completed. Contracts usually specify the performance period either by setting forth commencement and completion dates or by stating that work should be completed within some number of days after the notice to proceed or commencement of work. Many contracts also include interim or “milestone” dates specifying when certain portions of the work are to be completed. An inability to meet interim dates may provide the basis for actual or liquidated delay damages, termination of the contract, or an acceleration directive. Great care should be taken to clearly define these time periods, and the consequences for failure to meet any dates, to avoid misunderstandings and disputes.
Where a contract contains a specific date for the commencement of work, the owner may be deemed to have warranted that the worksite will be in a sufficient state of readiness so the contractor can begin work on that day. If the contractor is not allowed to commence work on that date, the owner may be liable for delay damages. In an attempt to avoid liability for the delayed start of a project, Owners often include a statement in the contract that the specified commencement date is only a projection or estimate.
2. Substantial Completion
\"Substantial completion\" of the work is generally defined as \"the stage in the progress of the work when the work or a designated portion thereof is sufficiently complete . . . so the owner can occupy or utilize the work for its intended use.\" Generally, an owner may not assess, and a contractor is not liable for, delay or liquidated damages after substantial completion.
B. EXCUSABLE DELAYS VS. COMPENSABLE DELAYS
Construction delays fall into two major categories: excusable and nonexcusable. An \"excusable delay\" is one that provides a basis under the contract for an extension of the contract performance time. Excusable delays can be either compensable (time and money) or noncompensable (time only).
1. Excusable Delays
Where delays in project completion are caused by outside forces, rather than the actions of one of the contracting parties or its agents, the delays are defined as “excusable” under most construction contracts. Where excusable delays are encountered, generally neither party is entitled to additional compensation or damages from the other because there has been no breach of the contract. Most construction contracts do provide, however, that a contractor incurring an excusable delay is entitled to a time extension for completion of the contract.
What constitutes an excusable delay for which a time extension is due varies from contract to contract. Some contracts include an exhaustive list of each type of excusable delay, while others conclude the enumeration with such catchall phrases as \"causes beyond the control, and without the fault or negligence, of the contractor.\" Each party to a construction contract must have a clear understanding of the intended scope and operation of the clause when requesting time extensions or entertaining time extension requests.
2. Compensable Delays
Compensable delays are excusable delays for which the innocent party is entitled, not only to a time extension, but also to additional compensation for the resulting costs. For example, where an owner is the cause of a delay, the contractor is entitled to both compensatory damages and a time extension, if the contract documents do not include any provision exonerating the owner from liability for such delays. Ladd Lime & Stone Co. v. MacDouglad Constr. Co., 32 Ga. App. 709, 124 S.E. 551 (1924).
3. Right To Finish Early
A frequently-held belief among project owners is that a contractor may not recover delay damages it the contract is completed within the original contract time frame. Although no Georgia case seems to have addressed this issue, there are cases in other jurisdictions in which owners have been found liable for delaying the contractor’s early completion of the project.
Although the owner does not have an obligation or duty to assist the contractor in finishing early, the owner may be liable for delay damages if it hinders or prevents an early completion. Metropolitan Painting Co. v. United States, 325 F.2d 241 (Ct. Cl. 1963). The Armed Services Board of Contract Appeals has considered several cases involving this issue, and has provided three preconditions to a contractor’s right to recover for delayed early completion: (1) the contractor must communicate to the owner an intention to complete early; (2) the initial schedule indicating an early completion must be reasonable; (3) the owner’s actions or inactions must prevent the contractor from completing early. Owen Schwam Constr. Co., ASBCA No. 22407, 79-2 BCA 13,919. Courts in Arkansas, Maryland and the District of Columbia have recognized the contractor’s right to finish early. Housing Auth. v. E.W. Johnson Constr. Co., 246 Ark. 523, 573 S.W.2d 316 (1978); State v. Cherry Hill Sand & Gravel Co., 51 Md. App. 299, 443 A.2d 628 (1982); District Concrete Co. v. Bernstein Concrete Corp., 418 A.2d 1030 (D.C. App. 1980).
4. Examples Of Compensable Delays
a. Defective drawings or specifications
An owner is generally held to impliedly warrant the plans and specifications he provides to the contractor. If such plans are erroneous or are insufficient to allow the contractor to perform the contract work in accordance therewith, the owner may be liable for time extensions and delay damages. Housing Auth. v. E.W. Johnson Constr. Co., 246 Ark. 523, 573 S.W.3d 316 (1978).
b. Failure to provide access
The owner is generally required to provide the contractor access to the worksite in a timely and properly sequenced fashion. Blinderman Constr. Co. v. United States, 695 F.2d 552 (Fed. Cir. 1982). However, in order to limit its exposure, the owner may insert an exculpatory clause into the construction contract or request that the contractor waive its rights or expressly assume the risk of restricted access.
c. Improper site preparation
Closely related to the owner’s duty to provide the contractor with access to the worksite is the owner's duty to prepare the worksite properly. In re Roberts Constr. Co., 172 Neb. 819, 111 N.W.2d 767 (1961). In regard to this duty, an owner may require the contractor to inspect the worksite prior to beginning work. Should the contractor fail to discover site preparation problems that a reasonable inspection would have revealed, or should it fail to raise any objections in a timely manner, the contractor may be precluded from recovering delay damages.
d. Failure to supply materials or labor
Many construction contracts make the owner responsible for supplying materials and equipment to the contractor. Should the owner breach this duty or fail to provide the materials or equipment in a timely manner, the owner will generally be liable for delay damages. GYMCO Constr. Co. v. Architectural Glass & Windows, Inc., 884 F.2d 1362 (11th Cir. 1989). The owner may be able to shift the responsibility for such delays, however, by including an exculpatory clause in the contract specifically addressing this situation.
e. Failure to provide plans/approve shop drawings
The owner (except on a design-build project) is typically responsible for providing plans and specifications to the contractor. Should the owner fail to provide the plans and specifications in a timely manner, or to timely approve a contractor's shop drawings, the owner may be liable for the resulting delay to the project. Pathman Constr. Co., ASBCA No. 23392, 85-2 BCA 18,096.
f. Failure to coordinate prime contractors
When an owner elects to contract with multiple prime Contractors to construct a project, many jurisdictions recognize a duty on the part of the owner to coordinate the work of the separate prime contractors. Thus, the owner may be responsible to one prime contractor for delays caused by another. North Harris County Junior College Dist. V. Fleetwood Constr. Co., 604 S.W.2d 247 (Tex. App. 1988). Even where the owner attempts to shift this duty to one of the prime contractors, the owner still may be liable for delays if that contractor is not also given the power to enforce its responsibilities.
g. Failure to give timely orders for work
If the owner fails to issue the notice to proceed within the time frame agreed to in the contract (or within a reasonable time if the contract does not specify a time), the owner will generally be liable for delay. This rule also applies to delays in authorization for extra work, delays in responding to requests for information, and any unreasonable failure to approve materials. Rome Housing Auth. v. Allied Building Materials, Inc., 182 Ga. App. 233, 355 S.E.2d 747 (1987).
h. Failure to make timely payments to contractors
Should the owner fail to make timely payment, the contractor may elect to terminate the contract as specified therein, or continue with the contract work and seek damages. The contractor can generally recover interest on the late payments, and in some jurisdictions may also be able to recover its consequential damages suffered due to late payment. Anthony P. Miller, Inc. v. Wilmington Housing Auth., 165 F. Supp. 275 (D.Del. 1958).
i. Failure to inspect
Under the typical contract, an owner may have the right or duty to inspect the contractor's work as it progresses. The owner may be liable to the contractor for inspections that are unreasonably intensive or repetitious, and for a failure to inspect timely and promptly.
j. Excessive change orders
When the owner orders an excessive or unreasonable amount of changed or extra work, the contractor may be allowed to recover its resulting delay damages. These damages are commonly referred to as \"impact costs.\"
k. Failure to accept completed work
Should the owner unreasonably refuse to make final acceptance of the contractor's work, the owner may be liable for the contractor's damages.
5. Examples Of Excusable Delays
a. Weather
Under most contracts, unusually severe adverse weather can give rise to an excusable (but not compensable) delay. Unusually severe adverse weather is adverse weather that is unusual for the time of year and the place it occurred. This may be shown by comparing previous years' weather with the weather experienced by the contractor. The mere fact that the weather is harsh or destructive is not sufficient if the contractor reasonably should have anticipated that type of weather at the time and place it occurred. Some bad weather is always to be expected.
b. Acts of God
Delays caused by Acts of God -- floods, hurricanes, tornadoes, or earthquakes -- fall into the excusable delay category, entitling the contractor to an extension of performance time, but no additional compensation.
c. Labor problems
Similarly, delays resulting from most, but not all, strikes and labor disturbances generally constitute excusable delays. If the strike is in effect or anticipated at the time of contracting, it may be determined that because the labor problems were foreseeable, the contractor should have made a provision for them in the contract. Likewise, when a strike is provoked by an unfair labor practice on the part of the contractor, the delay might not be considered to be due to a \"cause beyond the contractor's control.\"
With some exceptions, delays resulting from labor shortages not caused by labor disputes will not be excused. Similarly, a time extension generally will not be granted when its necessity results from subcontractor or supplier delays, because responsibility for their actions is generally assumed by and attributed to the contractor.
C. CONCURRENT DELAY
Concurrent delays are delays that occur, at least to some degree, during the same period of time. The term is used in construction as a term of art that refers to the situation when a compensable delay and an unexcusable delay occur at the same time or during overlapping time periods. For example, the term would apply when a contractor cannot commence work on the second phase of a project because the owner has failed to obtain a necessary right-of-way, and, simultaneously the contractor is also prevented from commencing the second phase by its own failure to timely complete precedent work in the first phase.
This phenomenon of \"concurrent delay\" creates interesting legal issues with regard to assessing responsibility for the overall project delay. This issue may be further complicated if the delay periods are of different lengths, the delay periods are not totally concurrent, or the delays have a different impact in terms of the number and types of work activities they affect and the severity of that impact.
1. The Georgia Approach
The early view of courts faced with concurrent delay situations, and possibly the still prevailing rule in Georgia, is that when a party proximately contributes to the delay, the law will not provide for the apportionment of damages to each party. Malta Constr. Co. v. Henningson, Durham & Richardson, Inc., 694 F. Supp. 902 (N.D. Ga. 1988); J.A. Jones Constr. Co. v. Greenbriar Shopping Center, 332 F. Supp. 1336 (N.D. Ga. 1971). In such a case, the owner and the contractor each must bear its own costs, even though one may have been responsible for significantly more delay than the other.
2. Apportionment
The prevailing trend is toward apportionment of delay damages. With the increased use and sophistication of modern scheduling techniques such as CPM, it has become easier to accurately segregate the impact of concurrent delays.
D. MAKING A DELAY CLAIM
1. Notice
Most construction contracts require that any claim for additional compensation or performance time be preceded by written notice to the owner or architect within a definite period of time after the delay-causing event. A notice requirement is imposed to protect the interest of the owner, who may be unaware of the causes of the particular delay and thereby precluded from taking immediate measures to rectify the situation and mitigate its cost. Failure to give prompt notice may result in a waiver of the contractor's rights, or result in a time-consuming litigation effort that may ultimately prove unsuccessful. Holloway Constr. Co. v.Dept. of Transportation, 218 Ga. App. 243, 461 S.E. 2d 257 (1995); Dept. of Transportation v. Fru-Con Constr. Co., 206 Ga. App. 821, 426 S.E.2d 905 (1992).
Formal notice may be unnecessary when the owner has actual or constructive knowledge of the problem, or when the lack of notice does not prejudice a legitimate owner interest. However, Georgia courts have shown a willingness to enforce notice provisions very strictly. E.G. Allgood Elec. Co., Inc. v. Martin K. Eby Const. Co., Inc., 959 F. Supp. 1573 (M.D. Ga. 1997), aff’d, 137 F.3d 1356 (11th Cir. 1998). Some courts view notice as a condition precedent to recovery. A contractor should never knowingly forego written notice on the assumption that one of those conditions is present. The contractor who gives the owner prompt written notice of delays and disruptions which are the owner's responsibility increases its opportunity to recover the costs generated by those problems.
2. No-Damages-For-Delay Clause
Despite the widely recognized right of a contractor to recover damages stemming from delayed or out-of-sequence work caused by the owner, the owner (or the general contractor if the claimant is a subcontractor), may succeed in asserting one of several possible defenses to a delay claim. The most notable potential defense is the no-damages-for-delay clause.
A no-damages-for-delay clause typically provides that the owner will not be liable for monetary damages resulting from any delays, or resulting from certain specified types of delays. Most clauses of this kind provide that a contractor's only relief for delays covered by the clause is a time extension. As a general rule, no-damages-for-delay clauses are legally valid and enforceable.
The inclusion of such clauses in construction contracts is now common, and their validity is no longer seriously questioned. Dept. of Transportation v. Arapahoe Constr. Co., 257 Ga. 269, 357 S.E.2d 593 (1987). The Georgia Supreme Court has recently held such a clause in the general contract to be binding on the general contractor’s subcontractor through a “flow down” provision. L&B Const. Co. v. Regan Enterprises, 267 Ga. 809, 482 S.E.2d 279 (1997). Although generally valid, the no-damage-for-delay provision must be clear and unambiguous, and must be specific with respect to what it purports to cover. Any ambiguity in the scope of these clauses will be construed against the drafter of the provision. Hall v. Skate Escape, Ltd., 171 Ga. App. 178, 319 S.E.2d 67 (1984). In Dept. of Transportation v. Fru-Con Constr. Co., 206 Ga. App. 821, 426 S.E.2d 905 (1992), the court enforced a no-damages provision for delays caused by the DOT’s other prime contractors. The DOT contracted with Fru-Con for the construction of some 15 bridges for I-575. The grading necessary to prepare the sites for construction was included in another prime contract. Fru-Con sought compensation and time extensions for delays caused by the grading prime contractor.
In turn, the DOT withheld liquidated damages for the late completion of the project. A jury returned a verdict against the DOT for over $1.3 million, plus attorneys fees for the DOT’s bad faith and stubborn litigiousness. The DOT appealed.
Fru-Con’s contract contained a listing of dates by which the various bridge sites would be ready. Fru-Con’s position was that the failure of DOT to deliver those sites by the specified dates constituted a breach of contract. The DOT relied in opposition on the following provision:
When separate contracts are let within the limits of any one project each contractor shall conduct his work so as to not interfere with or hinder the progress or completion of the work being
performed by other contractors.
Contractors working on the same project shall assume all liability, financial or otherwise, in connection with his contract and shall protect and save harmless [DOT] from any and all damages or claims that may arise because of inconvenience, delay, or loss experienced by him because of the presence and operations of other contractors working within the limits of the same project.
Notwithstanding the list of dates in Fru-Con’s contract, the court somehow decided that the DOT did not owe a contractual duty to provide Fru-Con with graded bridge sites on the specified dates. The court considered the list of dates to be merely representations as opposed to promises. The court said that the DOT was not a guarantor of the performance of the other contractors.
A number of courts have established that a contractor may recover delay damages despite the presence of a no-damage-for-delay clause in the contract, provided the delay:
(1) Was of a kind not contemplated by the parties in the contract clause;
(2) Was such as to amount to an abandonment of the contract;
(3) Was the result of fraud, bad faith or arbitrary action;
(4) Was the result of active interference with the contractor's work on the part of the owner (or active interference by the contractor where a subcontractor seeks recovery); or
(5) Was unreasonable.
When applying a no-damages-for-delay clause, most courts have adopted a policy of strict construction in determining whether the particular delay was within the contemplation of the parties. In addition, some state legislatures have passed statutes limiting the enforceability of no-damages-for-delay clauses.
In order to avoid the harsh consequences of a no-damages-for-delay clause, some courts have recognized a distinction between \"delays\" and \"hindrances.\" In one case, a court held that a no-damages-for-delay clause which did not include the term \"hindrance\" only barred the contractor from recovering the cost of an idle (as opposed to inefficient) work force. John E. Green Plumbing & Heating Co. v.Turner Constr. Co., 742 F.2d 965 (6th Cir.), cert. denied, 471 U.S. 1102 (1984).
Therefore, the contractor could recover damages that resulted when the owner \"merely\" hindered the contractor's work, with hindering defined as conduct that impedes, obstructs, or slows progress. Thus, it can be argued that virtually any act or omission by the owner which impedes, obstructs or slows the work of the contractor is a hindrance and falls outside the operation of a no-damages-for-delay clause.
Some courts have held that a contractor can recover delay damages despite the presence of a no-damages-for-delay clause when the delay is caused by the active interference of the owner, or by the owner's negligent performance of its contractual obligations. These courts have stated that an owner may become liable for delay where it arbitrarily interferes with the progress of the work or unreasonably fails to progress it, takes some action not contemplated by the parties to the contract, or otherwise actively or negligently causes an unreasonable delay, resulting in damage to the contractor.
A distinction should be made between a mere \"hindrance\" and \"active interference.\" Although a hindrance involves active obstruction by the owner, it is lesser in degree than active interference. In order to constitute active interference there must be reprehensible conduct on the part of the owner in the form of bad faith, evil motive or total disregard for the consequences. A hindrance, on the other hand, only requires some degree of impeding the contractor's work.
E. CONTRACTOR’S DAMAGES
A contractor's damages for delay may include the following elements:
1. Liquidated Damages
2. Inefficient or Idle Labor
3. Inefficient or Idle Equipment
4. Acceleration and Overtime
5. Extended Field Office Overhead
6. Unabsorbed or Underabsorbed Home Office Overhead
7. Escalated Material and Labor Costs
8. Legal Fees
9. Interest
10. Loss of Profits
11. Loss of Bonding Capacity
F. OWNER’S DAMAGES
The damages that an owner may recover for delayed completion are often fixed by a liquidated damages clause. Such a provision relieves the contractor of liability for the actual damages flowing from a breach and replaces this with liability in a fixed amount for each day that project completion is inexcusably delayed. A liquidated damages provision is valid if it appears that, at the time of contracting, the provision was not intended to establish a penalty, but, rather, to establish a reasonable approximation of the amount of actual damages which would result from a delay but which would otherwise be difficult to ascertain or prove. If a liquidated damages provision does not appear to represent an attempt to reasonably approximate foreseeable actual damages, but appears to be intended as a penalty, the owner will not be able to recover liquidated damages and will have to prove its actual damages resulting from the delayed completion.
A liquidated damages provision may operate to the benefit of the contractor. For example, in the case of Georgia Ports Auth. v. Norair Engineering Corp., 127 Ga. App. 864, 195 S.E.2d 199 (1973), the owner, as a result of a contractor-caused delay, incurred actual damages in the amount of approximately $140,000 plus the value of the lost use of the project for the delay period of 177 days. Nevertheless, the court held that the owner could not recover its actual damages, but was limited to recovery under the contract's liquidated damage provision for 177 days at $500 per day, or a total of $88,500.
Liquidated damages provisions should be considered carefully by all parties to a construction contract. Often the stipulated per diem amount is substantially less than the actual delay damages an owner may sustain. In such cases, the liquidated damages clause may provide a contractor a welcome safety net for late completion due to inexcusable delay.
The types of actual damages that an owner may be able to recover in the absence of a liquidated damages clause include:
1. Loss revenues due to delayed occupancy
2. Increased engineering and inspection costs
3. Increased financing costs and interest
4. Legal Fees
III. ACCELERATION
\"Acceleration\" is a term describing the situation when an owner requires a contractor to complete by a date earlier than the contract completion date, as that date should be extended for excusable delays. \"Directed acceleration\" occurs when an owner consciously directs a contractor to complete earlier than the contract completion date. \"Constructive acceleration\" is the term utilized in the more frequently encountered situation when an owner fails to grant a contractor time extensions to which it is entitled, and the contractor is required to achieve, or strive for, an earlier completion than the properly-extended contract completion date. Thus, acceleration may be a by-product of delay or other factors, which justify a time extension, which is not formally granted by the owner. The essential elements of a claim for constructive acceleration follow:
(1) Excusable delay;
(2) Timely request for a time extension;
(3) Failure or refusal to grant request;
(4) Conduct by owner that is reasonably construed as requiring the contractor to complete on a schedule that has not been properly extended;
(5) Effort by the contractor to accelerate performance; and
(6) Additional costs incurred by the contractor as a result of the acceleration.
If these elements are proven, the contractor is entitled to recover the costs incurred in accelerating its performance.
Acceleration damages usually take the form of premium time pay, the costs of additional tools and equipment required for the added crew, and the costs of labor inefficiency which may occur due to longer hours or increased crew sizes which complicate work procedures.