By: Lane F. Kelman and Jackson S. Nichols
Every contractor, no matter how experienced or prepared, will confront delays on a project. Typical causes of delays are bad weather, change orders, re-designs or omissions, long lead time, and unforeseen or differing site conditions. A delay, however, should not equate to financial loss if proactive steps are taken.
Delays Are on the Rise
A 2020 Arcadis report on worldwide construction claims found that the number and costs of construction disputes are increasing. Previously, the average value of delay disputes in North America had dropped every year since 2013. This year, however, the average value rose from $16.3 million to $18.8 million. Additionally, the average time to resolve such disputes increased from 15.2 months in 2018 to 17.6 months in 2019.
Individually, contractors can be affected in a variety of ways. Unanticipated and protracted project durations can increase extended general conditions costs and tie up home office resources. Material and labor cost escalation can occur. Liquidated damages can be assessed against contractors or subcontractors if they are deemed responsible for schedule slippage.
A delay claim is not limited to schedule elongation. Schedule impacts due to delay can result in delay claims. Acceleration, whether constructive or directed, will increase labor costs. And poorly designed schedules or resequencing can create inefficiencies and lost productivity, which also increase labor costs.
Delay disputes are expected to rise again due to a COVID-19 fallout. Experienced contractors know that delays—while inevitable—do not have to be yours to bear. Here are some best practices to minimize your risk and preserve your claims.
How to Protect Your Business
Know Your Contract
This is the first and most important step for preserving your claim. Many construction contracts have strict definitions of claims that can determine your entitlement. For example, the widely-used form contract, AIA A201-2017, defines a claim as a “demand or assertion by one of the parties seeking, as a matter of right, an adjustment or interpretation of Contract terms, payment of money, or extension of time.” Understanding the requirements of your contract’s claim process is essential to securing any recovery. For instance, must you first submit a claim to a particular person as a first step in the dispute resolution process? Does your contract require you to engage in mediation before litigation? Is arbitration optional or required?
Another important clause requires contractors to provide notice of any delays. Frequently, construction contracts contain both very short notice periods and formal requirements for making an effective claim notice. Courts in many jurisdictions will strictly enforce those requirements. Contractors must know and follow these provisions exactly to preserve their claims. What constitutes notice can be open to interpretation.
Understand what must be submitted to support your claim. Does your contract require a schedule analysis showing impacts? Are you required to quantify your damages within a time certain?
Where delay claims are concerned, construction contracts frequently contain special provisions limiting any recovery. Such clauses, commonly referred to as “no damages for delays” provisions, allow contractors to seek extensions of time to the project schedule but do not permit recovery of extra costs caused by delays. Thus, a contractor could avoid liquidated damages by obtaining a time extension but might still be on the hook for other unanticipated costs. Some jurisdictions enforce these clauses more rigorously, while others allow exceptions under certain circumstances. Maryland courts, for example, enforce these provisions more strictly than courts in Virginia or the District of Columbia.
Track Your Costs
Proper tracking and documentation can help contractors preserve delay claims seeking extra time and money. Accordingly, contractors should record in real-time all costs associated with delays, including extended job supervision, overhead, equipment costs, wage escalation, inefficiencies, financing, and reduced job opportunities. These records will substantiate a claim, position the contractor to prevail, and enhance recovery.
Create a Paper Trail
While construction contracts often contain strict notice provisions, contractors can improve their claim by going beyond providing notice only. Documenting project communications and directions can be crucial.
If you cannot proceed with scheduled work because of lack of access, photograph the obstruction and send a letter. If multiple trades are stacked contrary to the schedule, make a note. Directions are often given verbally in the field, so confirming the direction in writing can save proving the direction later. Daily logs, serial letters, photographs, and emails help build the claim because they reflect actual project conditions. Emails sent when an issue arises that attach documentation (such as photographs or drawings) can be particularly effective as a project record.
Watch Out for Release Language
Industry practice requires most contractors to execute lien waivers or partial releases on a monthly basis as a pre-condition to payment. Oftentimes, despite the document’s title, the release language is much broader than a partial release of lien. These waivers typically contain language “waiving” or “releasing all claim rights” beyond just lien rights. Some will explicitly release all claims simply through the waiver’s signature date, including any claims for costs resulting from delays. Others will explicitly release all future claims that the contractor is not even aware of yet. Broad release language is not limited to just partial releases but frequently is buried in change orders as well. Unfortunately, it is not atypical for a contractor to be confronted with a significant delay claim that appears waived because the contractor signed a lien waiver or change order. It is therefore essential to understand the terms of the forms before you sign and take steps to preserve your claim.
While construction delays are inevitable, do not get caught flat-footed. Knowing your contract and having protocols in place is essential to preserving claims. The coordination between project administration and management and establishing good practices will put you in the best position to recover. This small measure of prevention can help you protect your company against more serious financial consequences.