Time Is Money - Delay Claims in Construction
June 18, 2012
Karen Wyke
Alex Kotkas
(With thanks to Devin Crisanti)
Introduction
Overview of delays – excusable vs. inexcusable
The contractor’s claim for acceleration
Measuring Delay
The contractor’s heads of damage
The owner’s heads of damage
What is delay?
A construction delay occurs when:
A. The construction of a project or a part of the project is not
completed within the time that was specified and agreed
to in the contract; or
B. The scope of the work increases to the extent that more
work is to be completed within the original contract time
Excusable Delay
A non-compensable delay that excuses the parties from
meeting a contractual deadline
Where excusable delays occur, the owner must provide an
extension of time to the contractor to complete the work
Excusable delays:
Site conditions
Weather conditions (in some cases)
Strikes
Acts of municipal and governmental authorities
Acts of God
Inexcusable Delay
The party causing the delay assumes the associated costs
Inexcusable delays are delays that could have been avoided by due
care of the party
Where inexcusable delays are caused by the owner - the owner
must provide an extension of time to the contractor and compensate
for the costs that arise from the delay
Where inexcusable delays are caused by the contractor - the owner
does not have to provide an extension of time. The owner is entitled
to make a claim against the contractor to recover costs resulting
from the delay
To mitigate the risk of an inexcusable delay claim an owner or
contractor can use a “float”, which is slack time built into a
construction schedule
Inexcusable Delays Caused By The
Owner
Excessive changes in requirement or design
Defective or insufficient plans and specifications
Owner interference
Failure to provide adequate access to the site
Failure to obtain necessary permits for the work
Failure to coordinate the job when there are separate contracts awarded
Failure of the consultant to provide or approve drawings in a reasonable time
Inexcusable Delays Caused By The
Contractor
Contractor management and performance problems
Failure to properly staff the job
Poor workmanship
Failure to order materials and equipment in a timely fashion
Unavailability of labour, materials or equipment
Acceleration
Acceleration occurs when:
A. A contractor must complete its work faster than it had
originally planned in the construction schedule; OR
B. Despite excusable delay meriting an extension of time,
the owner requires the contractor to complete the
construction as originally scheduled
7 Requirements of Acceleration
1.
The contractor encounters one or more excusable delays, which would entitle
it to an extension of time
2.
Timely notice by the contractor of such delay
1.
The contractor requests a time extension (in a timely way)
1.
The owner fails or refuses to grant a time extension without reasonable delay
1.
The owner requires the contractor to complete within the original contract
period (either expressly or impliedly by the owners actions)
1.
The contractor reasonably attempts to accelerate its rate of performance
1.
The contractor incurs additional costs as a result of the acceleration
Requirements For A Successful Delay
Claim
Delay must affect the overall construction and not just
eliminate the float
Delay must extend the overall project completion date
The alleged problems or events are the ones that actually
caused the delay
Notice of delay must be given (comply with contractual
requirements for notice: timeline and written)
Evidence in the form of accounting records to prove
damages must be available
Measuring Delay
It is often very difficult to measure the impact of one delay on the completion
of the project
The central question is whether the particular activity being delayed is crucial
to the progress of other activities, resulting in an overall delay
Measuring delay is further complicated by the fact that delay in a critical
activity may be neutralised by acceleration
The measurement of delay falls within the domain of a construction loss
expert
There are 3 common types of delay measurements:
Conventional Method
Collapsing Method
Snapshot Method
Conventional Method
Development of a schedule which outlines how the project
would have progressed if only the inexcusable delays by the
defendant are taken into account (exclude excusable delays)
Compare As-Planned to As-Built Schedules to ascertain the
extent of delay
Those delays are then added to an As-Planned Schedule
If the project was completed before the date for completion in
the schedule then the contractor accelerated its work
Collapsing Method
Reverse of the Conventional Method
Subtract the defendant’s inexcusable delays from the AsBuilt Schedule
The resulting “collapsed” schedule demonstrates when the
project would have been completed but for the defendant’s
inexcusable delays
Snapshot Method
Selects one or more “snapshot” points at which the impact of
preceding delays is measured
Completion date is then recalculated from that date forward
using the As-Planned Schedule
The difference between the completion date in the AsPlanned Schedule and the completion date in the revised
schedule is the delay attributable to the delay preceding the
snapshot point
Owner’s Heads Of Damage:
Claims that can be made by the owner are:
Loss of Rent
Loss of Business Revenue
Loss of Profits From Sale of the Property
Additional costs are recoverable if they are reasonably
foreseeable
Loss Of Rent
An owner is able to recover damages for reasonably
foreseeable loss of rental income from delayed completion
of a building
The following claims can be made:
1. Loss of revenue during the delay
2. Loss of revenue resulting from the postponement of
future rent increases
3. A pro-rated amount of property taxes incurred during the
period of delay
4. Loss of parking revenue (if applicable)
Loss Of Business Revenue
The owner can claim loss of revenue or profits arising from
the delayed opening of its business
The owner is only entitled to damages that are reasonably
foreseeable
The owner should declare what the intended use of the
project is at the formation of their contract or in the invitation
to tender to ensure damages are “reasonably foreseeable”
Loss Of Profits From Sale Of The
Property
Most often occurs with residential real estate
If the real-estate market falls during the time of the delay, the
owner can claim damages for its loss
The owner must be able to prove that it is probable that the
contractor’s default caused it to lose profits on the sale of the
units
Contractor’s Damages
The heads of damage that can be claimed by the contractor are:
Head Office Overhead
Labour Costs
Material Costs
Loss of Opportunity
Head Office Overhead
There are two types of calculation methods commonly used:
A.
Shore & Horwitz v. Franki of Canada Ltd.
1. Contractors monthly project specific overhead costs multiplied by the
number of months of the delay, plus
2. Head-office overhead costs are also awarded based on percentage of
out of pocket expenses incurred because of the delay - by determining
the ratio between the contractor’s head office overhead and its other
direct costs during the time of the project then multiplying that
percentage by the project specific out of pocket expenses
B.
Eichleay Corporation
1. (contract billings / total billings for contract period) x (total overhead for
contract period) = overhead allocated to contract
2. allocated overhead / days of performance = daily contract overhead
3. daily contract overhead x days of delay = damages recoverable
Labour Costs
Labour costs can form part of a contractor’s delay claim in
four ways:
1. Contractor can recover damages for idle workers during
the delay (the contractor has a duty to mitigate its losses
with idle workers)
2. A contractor can recover costs for work being completed
after an increase in the price of labour
3. A contractor can claim damages for the loss of
productivity due to stop-and-go work which results from a
delay OR for over-staffing and overtime due to
acceleration
4. Costs are recovered for loss of productivity if delay
causes the project to be extended into months of adverse
weather
Materials Costs
If a delay forces a contractor to purchase materials after an
increase in the price contemplated in its bid, then it may
recover this extra cost
The increase in price must be reasonably foreseeable
For equipment: rental, depreciation, operating costs and
maintenance costs are recoverable
Loss Of Opportunity
In D.J. Lowe Ltd. v Nova Scotia (Attorney – General), the Nova
Scotia Supreme Court awarded damages to a contractor who proved
that a delay of one year had deprived it of the opportunity to bid on
other work
Damages were calculated by estimating the revenue that the
contractor was likely to have earned from other projects during the
time of the delay, based on its earnings in previous years
That amount was then multiplied by the contractors average ratio
between profits and gross revenues over this period of time
Loss of opportunity damages have to be foreseeable and based on
reasonable evidence (however, there is no requirement of
substantial proof, such as a signed contract)
Parties often limit loss of opportunity damages by contract
Global Approach to Contractor’s
Damages – Total Cost Method (TCM)
Used when costs of delay cannot accurately be separated by activity
Employed as a last resort approach by the courts to properly compensate the
contractor’s loss
The contractor’s damages under this approach are simply taken to be the difference
between the amount of its bid and the actual cost of completing the project
TCM is often refused by judges because:
The contractor receives a windfall if the project was underbid
The contractor is compensated for costs despite its own inefficiencies or
contributions to the delay
@ 4 Requirements must be present for the courts to use TCM:
1. There is no other way of estimating damages
2. No underbid or errors in the bid took place
3. Inefficiency by the party submitting the claim can be distinguished from the costs of
delay due to improper acts of others
4. The actual costs incurred by the contractor are reasonable
Recommendations
If timing is critical, include detailed and specific As-Planned Schedules
Include adequate contractual provisions to provide for an extension of time
due to delay
Include specific provision allowing for the resolution of delay disputes
Build sufficient float into the construction schedule
A contractor should include express terms allowing for an extension of time
plus compensation for costs in the event of delay
Owners should expressly contract out of claims for lost opportunity
Document delay issues carefully and contemporaneously