The single most common, and often most expensive, problem for contractors encountered on any construction project involves delays. Delays are not really the problem, they are just the measured effect of the problem.
And, some delays, in and of themselves, may not seem to be an issue, but individual task delays can impact productivity and create a domino effect on the critical path. When the magnitude of these seemingly insignificant delays compound, so do the related costs. The end result is that delays eat up project profits and expose the contractor and subcontractors to significant risk.
Sometimes, it may seem like short delays here and there do not impact the project cost, so you may not want to take the effort to keep track and provide notice of the delay. But, the reality is that minutes turn into hours and lost hours cost real money.
For example, take a crew of 4 workers with one 15 minute delay caused by a chatty owner’s representative - this equates to one labor-hour of lost productivity. Thus, that 15 minute delay probably just cost you at least $150 in lost labor costs – multiply that by 5 days a week, and you’re looking at $750 per week, $3,000 a month, and so on. For larger crews and longer-terms projects, you could be sucking tens of thousands out of your profit margin in labor costs, not to mention not being able to explain why the project schedule float has been eaten up, resulting in more tasks being on the critical path.
Contracting for Delays.
Don’t expect your contract to help you prevent delays, or, in some cases, even provide adequate compensation if you are delayed. Contract terms, even when favorable to you, cannot immunize your project from delays. Worse yet are contract terms that try to limit the contractor’s or subcontractor's ability to recover its costs when events that cause the delay have nothing to do with the fault of the contractor or subcontract have done.
Contract terms often address delays in four main categories:
1. Force Majeure Events:
These are events that are not caused by the owner or any contractor and are generally unanticipated. For these types of delays, owners like to share this risk with the contractors. This means that the contractor may get an extension of time, but no extra compensation for the delay. Though historically called “acts of God”, each contract can define what it considers a force majeure event. Commonly, this definition can include extreme weather that is unusual for the area, acts of war, world-wide raw material shortages, strikes, embargos, and other events or conditions that would not be anticipated by the parties when they are signing the contract.
Especially given recent historic events such as the government shutdown sin response to Covid, contracts and subcontractors will want to include things that may not traditionally be considered force majeure events such as shortage of materials by a contractor’s supplier, local labor problems involving a contractor’s own labor force, or even transportation interruptions.
The broader the force majeure definition, the better for the contractor or subcontractor. When negotiating a contract, a contractor or subcontractor would do well by adding to the list of force majeure events wording such as “or any other event or occurrence not within the reasonable control of Contractor [or Subcontractor]", which will effectively broadened the definition in your contract with just a few words.
2. Owner-Caused Delays:
A contractor would expect that if the owner causes a delay, then the contractor would get not only an extension of time, but also payment for extra time-based costs like for rental equipment, job-site trailers, temp fencing and toilettes, and extended job-site overhead costs. But, many contracts now contain no-damages-for-delay clauses that prohibit the contractor’s recovery for these types of time-based costs. For longer projects, it is critical that contractors know whether or not their contract contains such a clause so that they can approach the issue reasonably during the contract negotiations.
3. Contractor-Caused Delays.
It usually goes without saying that the prime contractor will be liable for delays caused by it or its subcontractors and suppliers on every tier. But, a contractor can get itself on better footing if it negotiates what remedies there are for contractor-caused delays.
Contractors want to avoid a contract that allows the owner to send a “48 hour notice” demanding that more labor be added to the project just because a certain task or trade may be getting behind. Often contracts require a contractor to work overtime or otherwise accelerate its work if it falls behind – all at the expense of the contractor.
But, what if the task or trade is not on the critical path? In that case, a contractor or subcontractor would want the opportunity to present a reasonable recovery plan instead of just throwing more laborers on the project. This opportunity can be negotiated in a contract or subcontract by focusing delay concerns on work that, if delayed, would affect the critical path of the project schedule.
4. Concurrent Delays.
Concurrent delays are when there are two or more events causing a delay during the same period of time. A contractor must be very careful with contract wording that would result in it not being granted even a time extension for delays caused concurrently by the contractor and the owner or a force majeure event.
Contractors also want to be careful with contract wording related to the ability of the owner to still assess delay damages, including liquidated damages, against the contractor even for concurrent delays. Both prime contractors and subcontractors will want to make sure that the wording in their contracts is clear that concurrent delays will result in time extensions and delay damages that are, at the very least, equitably proportioned among the various causes of a concurrent delay.
Be aware that contracts use other wording for the above types of delays, such as “excusable”, “non-excusable”, “compensable”, and “non-compensable.” Whatever the actual terminology used in the contract, you need to understand exactly how your contract handles delays. This is because you can bet that, once there are delays, the lawyers come out in droves to analyze the contract to determine who will be responsible for the failure to complete the project on time and who has to pay the resulting delay damages.