4) Delayed Notice to proceed: Many construction contracts set forth the time on which a notice to proceed will be issued to the contractor. In formulating bids, contractors rely on this date when making labor and equipment arrangements and scheduling other jobs. If the notice to proceed is not issued within a reasonable period after the date set forth in the contract, the contractor may accrue extra expenses as well as opportunity cost. A delayed notice to proceed is generally a compensable delay because of these expenses.
5) Delayed Change Orders: While change orders are compensable in their own right, a contractor will be entitled to delay damages where the changes and extras are excessive. Reasonable change orders are expected, and not compensable as delay damages. Of course, contractors are not entitled to compensation for their own errors, and in fact the owner may be entitled to damages from the contractor, for lost revenues, foregone rental income, increased financing costs or liquidated damages (but not both liquidated and actual damages).
6) Design Errors and Omissions: The owner has an implied obligation to provide contact documents suitable and feasible for the work to be done. While the owner may have some right to recover from the designer for inaccurate documents, it is still the owner who is responsible to the contractor for the provision of accurate plans and specs.
Delays caused by outside pates without the fault of the owner or contractor may be excusable but not compensable. For example, a New York State Department of Transportation contact involved the relocation of railroad lines in
Practice Pointer on Compensability: Merely because a delay-causing event was neither caused nor controlled by the contractor, does not mean the contractor is necessarily entitled to additional compensation. If neither the owner nor the contractor has the power to control the delay-causing event, the contractor will be entitled to additional time but not additional compensation.
c) Criticality
Not all delays impact overall completion. Only those delays which impact the project's critical path and overall completion date are compensable. Contractors are not entitled to an extension of time for an excusable delay unless it is critical (i.e., on the critical path).27 Project delays which do not impact overall project completion fall within the project's float time.28 However, non-critical activities can become a compensable delay if they exhaust all the allocated float time. Contractors often attempt to add the cumulative delay of all work activities and argue that because of its diligence, the overall impact on the critical path of the project was mitigated. However, this is a logically flawed analysis which completely disregards the project's critical path.
The importance of the creation and maintenance of an accurate critical path schedule, in order to recover for delay damages, has recently been reinforced by a decision of the Federal Claims Court in Blinderman Constmction Co. Inc. v. UnitedStates.29 In Blinderman. the U. S. Court of Federal claims ruled that while a period of delay was clearly the government's fault, the contractor's critical path analysis was "utterly useless" as it failed to delineate a single critical path, and had not been updated in a timely manner. The court held a delay caused by defective design documents is compensable if in fact that problem prevented the contractor's timely completion of the project. The contractor had submitted a CPM schedule in support of its delay claim. However the court found it to be "gravely flawed" in that it did not properly demonstrate that the design defects impacted the project's critical path.
The Court highlighted four shortcomings in the (2PM data. First, there were gaps in the network diagram making it impossible to trace the entire critical path. Second, updates had not been run in a timely fashion and were not supported by contemporaneous business records (the updates had been generated after the fact in support of the claim). Third, while numerous updates had been generated, it was impossible to relate that information to actual events in the field. Fourth, the contractor's scheduling consultant had attempted to clarify matters by stating there were multiple critical paths for the project in question. The Court held the contractor's misunderstanding of the Critical Path Method was "troubling" and that "the conclusions plaintiff seeks to establish from its voluminous (CPM submissions are scarcely selfevident....Like any other computerized aid to comprehension, CPM analysis is only as good as the underlying information upon which it is based.”30
Practice Pointer: The contractor bears the burden of establishing criticality -- The mere showing
of excusable, compensable delay, without clearly establishing their critical impact on the overall
completion of the project. will not permit an adjustment of contract price.
d) Concurrency
The difficulty with concurrency arises out of the definition. There is no such thing as a 'concurrent delay'. There are however concurrent causes of delay which can excuse liability for liquidated damages, some which give rise to a liability for loss, and some which do neither. There is nothing particularly scientific in identifying which is which, provided there are reliable project records and a competent critical path based program.31
A "delay" may involve a late start or extended duration of an activity that causes a subsequent series of activities to delay completion of the project. If two such events occur so that it is impossible to determine which is controlling the late completion, they are deemed to be concurrent. If they are concurrent and both apparently causing late completion, then they are deemed excusable with respect to each other.
For example, if an owner fails to provide access to the site for fifteen days (excusable/compensable), and there are unusually severe snowstorms with high winds for eight of the fifteen days (excusable/non-compensable), there was a concurrent delay of eight days. Had there been no storms, the contractor would have been able to recover damages for the fifteen days he was denied access to the site. However, due to the storms, he would have been unable to work anyway. Therefore the contractor is limited to only seven days' recovery of delay damages, but is entitled to a fifteen-day extension of time.
Concurrent delays can work to a contractor's benefit also. For instance, if the owner fails to allow site access for eight days and the contractor did not procure the equipment for fifteen days, the contractor is only liable to the owner for seven days of unexcused delays. The key to apportioning responsibility in a concurrent delay situation is the ability to indicate, with sufficient specificity the portion of the delay for which the owner and the contractor must assume liability.32
In Sipco Services & Marine. Inc. v. United States33, the Court of Claims had occasion to opine on the importance of being able to reasonably untangle the alleged concurrent events which caused the delay:
It is undisputed that some delays to the project were not solely attributable to [the owner's] actions. In fact the court recognizes that on occasion [the contractor's] work practices contributed to project delays. Because of that fact the delays may be deemed concurrent or intertwined obligating the contractor to separate its delays from those which the evidence shows may be fairly attributable to the [owner]. The reason for this requirement is that courts will generally not hold the [owner] liable for delays without a showing by the contractor that the owner caused the delay: Therefore, where both parties contribute to the delay, neither can recover damage, unless there is in the proof a clear apportionment of the delay and the expense attributable to each party. Although [the contractor] must distinguish for the court those delays for which the [owner] is responsible as opposed to its own, its standard for proving damages is not so high as to require amounts with absolute exactness or mathematical precision. In fad the court need only enough evidence to make a fair and reasonable estimate. [Citations omitted]34
Practice Pointer on Concurrent Delay: In order to make a prima facie showing of entitlement to recovery for concurrent delay a contractor must be able to separate the costs of the delays for which he is responsible and those for which he was entirely not responsible.
e) Proximate Causation
A contractor wishing to recover on a delay claim must prove that it incurred damages as a direct result of the claimed event; that is the damages were proximately caused by that event. A serious delay could occur on a project which is the responsibility of the owner, for which the contractor gave timely notice and which directly affected the contractor's costs. However, if the contractor cannot establish the linkage between the specific delay causing event and the increased costs, then no recovery will be permitted.
In order to prevail on a delay claim, the contractor bears the burden of demonstrating that: (1) the alleged delay was caused proximately by the owner or the owner's representatives; (2) the delay caused specific and quantifiable damages which harmed the contractor; and, (3) the extent of the alleged delay was unreasonable and is provable within a reasonable degree of certainty. Moreover, [the contractor] bears the burden of demonstrating each element of this three-pan test by substantial evidence.35
The contractor must generally provide a reliable schedule analysis. This analysis must properly determine the critical path of the project and allocate a specific number of days to each and every measurable delay. This allocation of delay days provides the basis for the calculation of time related damages. This does not mean that the contractor may simply evaluate delays which it believes are the owner's responsibility. Rather, the contractor must also analyze delays such as weather, strikes, delay the contractor or his subcontractors have caused themselves, as well as delays caused by the subcontractors or suppliers. While this requires a substantial effort, it must be performed to prove causation.
The importance of accurately parsing causation was recently affirmed in the Blinderman case, in which the court held that in order to recover delay damages, the contractor must prove a clear apportionment of the delay and expense attributable to each party and advance credible evidence that the contractor was unable to resume work due to the sole fault of the owner.
Even assuming arguendo the [the contractor's] claim[]... Is not foreclosed by the [contractor's] inability to establish unreasonable delay on the part of the [owner] the [owner] would prevail...the contractor has failed to prove every essential element of a compensable delay by a preponderance of the evidence. First, the contractor has failed to prove every essential of a compensable delay by a preponderance of the evidence. First the plaintiff must quantify the extent of each delay, if any, that was unreasonable. Second, the plaintiff must prove that each delay was proximately caused solely by the [owner's] actions. Third, it must be shown that each delay resulted in some measurable injury to the [contractor].37
Practice Pointer on Causation: As the Blinderman Court makes clear, in order to determine whether
a compensable delay has been proven, it is necessary for the contractor to prove that he was not the
cause of such delay, the delay was unreasonable, and that he suffered a measurable injury as a result. The "clean hands" of the contractor are the sine qua non of recovery.
6) Owner Administered ADR Clauses; The Westinghouse Decision and its Progeny
Many standard form construction Prime and Sub-Contracts incorporate "arbitration" clauses which are enforceable through the various Federal and State Arbitration Acts. For example, if a contractor signs a construction contract incorporating the MA Document A201 by reference, then the contractor has agreed to arbitrate any dispute arising out of the construction contract.
Many public construction contracts require the contractor to submit to arbitration before an arbitrator of the governmental agency's choosing. Often the agency's chief engineer or dispute's panel will be contractually designated as the arbitrator of claims against that agency. Although this may seem like a contract of adhesion, courts have upheld such clauses.
In the well-known Westinghouse decision38, the New York Court of Appeals held as enforceable an alternative dispute resolution provision in the standard New York City Transit Authority owner-contractor agreement39 These contracts authorized the Transit Authority's Chief Engineer to make conclusive, final and binding decisions on all questions arising under the Transit Authority's contracts. The only judicial review permitted was to contest the Chief Engineer's decision on the grounds of "arbitrary and capricious" --an exceedingly difficult standard to establish. In holding such a clause valid and enforceable, the New York Court of Appeals stated:
Relative one sidedness is a proposition of too general a nature to resolve by itself, such an important public contract issue. To be sure, when powerful municipalities put their public works out to bid, and require competition, low cost and performance in accordance with published specifications they enjoy a virtual monopolistic kind of power. But that does not make those contracts adhesion agreements.49
The Westinghouse holding has however recently been challenged from across the
Here Gothic's contract with PATH has the hallmarks of a contract of adhesion.... The contract was obtained through the bidding process and the contractor has no real say in its provisions. It is evident, that utilizing PATH' s chief engineer as arbitrator presents a conflict of interest. The Chief Engineer has unbridled decision-making power under the Dispute Resolution Clause. Hence, because Gothic and PATH did not have equal bargaining power PATH's argument that the clause is enforceable because the contractor signed it is unpersuasive.42
The Appellate Division reversed the summary judgment decision and remanded for further proceedings, as to the bias of the arbitrator. Thus, it appears that some jurisdictions are moving away from the rigid
Practice pointer: If confronted with an owner administered ADR provision, do not wait until after a decision is rendered to challenge the bias of the arbitrator Waiting until after receipt of an adverse ruling may waive the right to challenge the arbitrator on the grounds of bias. If you are able to demonstrate the bias of the arbitrator, the self-serving ADR clause may be defeated.
7) Conclusion
We hope that this paper is useful to design professionals, attorneys and insurance professionals when confronted with construction delay claims. Obviously, every claim is unique, involving different facts and circumstances. However, we have attempted to highlight common themes and recent trends in judicial interpretation applicable to many construction delay claims.
It will be interesting to watch whether the
1. 41 U.S.C. §601, et seq.
2. 92 N.Y.2d 20, 677 N.Y.S.2d 9,699 N.E.2d 368 (1998).
3. After the contractor's claims were dismissed by the Court of Appeals, the contractor commenced an independent action against the project's architect and engineer for negligence and fraud.
4. See, William Postner & Robert
5. Postner& Rubin, §7.32.
6. Postner & Rubin, §7.34.
7. Postner & Rubin, §7.34.
8. 67 N.Y.2d 297, 502 N.Y.S.2d 681, 493 N.E.2d 905 (1986).
9. See, James Acret, Construction Litigation Handbook, §7.09 (1986).
10. N.Y.S. S.6711-b.
11. Several New York statutes, collectively known as the Wicks Law, require the State and its municipalities to bid and to contract separately for 4 stages of construction on any public construction project valued over $50,000: general construction; plumbing; HVAC; and electrical wiring. The intent of these provisions is to stimulate competition among contractors, and thus ostensibly lower costs to government. Supporters of this decades-old system claim it results in lower and well-delineated bid prices for such projects, provides the municipality or agency a choice of specialty contractors, and grants greater opportunities for minority contractors. Opponents of multiple contracts charge that such contracts lead to higher final project costs due to increased administrative costs, cost overruns, and delay-related damage claims filed against the municipality or agency. They favor a system which grants a single project contract to a general contractor, who then takes responsibility for coordination of the project. Repeal of the Wicks Law continues to be a pressing item for legislative consideration.
12. “Misrepresentation” occurs when the government misleads a contractor by negligently untrue representation of fact, or fails to disclose information it has a duty to disclose. Meyers Companies v.
13. Postner & Rubin § 5.01.
14. 41 Fed.Cl. 303 (1998).
15. 41 Fed.Cl. 303 (1998).
16. Impact costs generally include loss of productivity, increase in material costs due to inflation or extra expenses incurred due to change in season and other expenses flowing directly from the delay.
17. See, e.g. T. Brown Constructors. Inc. v. Pena, 132 F.3d 724 (Fed. Cir. 1997); H.B. Mac. Inc. v.
18. 711 A.2d 1088 (Pa. Comm. Ct. 1998).
19. 711 A.2d 1088 (Pa. Comm. Ct. 1998).
20. 426
21. 426
22. Liquidated damages are essentially an agreement at the time of contract initiation about the cost to the owner for each day that the project extends beyond the contract time. The owner may charge the contractor damages for each day that the contractor overruns the date of substantial completion. Liquidated damages provide compensation to the owner for financial and other losses resulting from delayed completion. Since it is often difficult to determine with accuracy the actual value of the losses, a predetermined sum is used in lieu of the actual damages. Liquidated damages are a reasonable pre-estimate of the likely damage to the owner of a delay in completion of the facility. Liquidated damages clauses will not be enforced by the courts if they are seen as a penalty. The amount of liquidated damages must not be arbitrary but rather a reasonable reflection of the actual damage incurred if the project is not completed on time. The amount of the liquidated damages must bear a reasonable relationship to the real (not imagined) harm that may be caused to the owner.
23. ASBCA No. 46498, 99-1 ¶30,148, Nov. 30, 1998.
24. ASBCA No. 46498, 99-1 ¶30,148, Nov. 30, 1998.
25. 48 C.F.R. Sec. 52.21212(b)
26. ABC Paving Corp. v.
27. The critical path is one which requires a breakdown of the entire project into individual tasks and the number of days required to perform each one. In addition, there are numerous side paths for subordinate tasks if improperly scheduled or unduly delayed in performance, can, on occasion become critical and thus change the critical path for the entire project.
28. Float Time is the amount of time available to perform non-critical activities, that is the ability to have an activity's performance extended without impacting the critical path.
29. 39 Fed. Cl. 529 (1997).
30. 39 Fed. Cl. 529 at 584-86 (1997).
31. See, Keith Pickavance, Delay and Disruption in Construction Contracts. §12 (1997).
32. See, Bramble & Callaghan, Construction Delay Claims. 1987.
33. 41 Fed. Cl. 196 (1998).
34. 41 Fed. CI. at 225(1998).
35. See, L & A Jackson Enterprises v.
36. 39 Fed. Cl. 529, 583 (1997).
37. Blinderman at 544.
38. Westinghouse v. NYC Transit Authority, 82 N.Y.2d 47, 603 N.Y.S.2d 404, 623 N.E.2d 531 (1993).
39. The NYC Transit Authority incorporates a similar clause in its owner-architect agreement for professional services.
40. 82 N.Y. 2d at 55, 603 N.Y.S.2d at 408, 623 N.E.2d at 535 (1993).
41. 312 NJ.Super. 1,711 A.2d 312 (N.J. App. Div. 1998).
42. 312 N.J.Super. 1,711 A.2d at 317.
43. 92 N.Y.2d 20,677 N.Y.S.2d 9,699 N.E.2d 368 (1998).
44. Westinghouse v. NYC Transit Authority, 82 N.Y. 2d 47,603 N.Y.S.2d 404,623 N.E.2d 531 (1993); Gothic Construction Group, Inc. v. Port Authority of
45. Pennsylvania Department of Transportation v. DiMarco & Co., Inc., 711 A.D.2d 1088 (Pas.
| Page 1 | 2 |
