Construction Delay Claims

November 13, 2018

It is virtually inevitable that any significant construction project will incur schedule delays.  Subject to adjustments for factors beyond a contractor’s control, late completion of the construction is a breach of contract for which an owner is entitled to claim damages.  Conversely, where the project delays are caused by factors beyond a contractor’s control, a contractor is entitled to claim an extension of time and additional compensation for delay to the construction schedule.

In the latter scenario, contractors will invariably prepare delay claims to quantify their cost over-runs.  Typical causes of delay include design changes, differing site conditions, untimely owner approvals, procurement delays, impediments to site access, stacking of trades, change in sequencing of the work and other similar conditions.

A contractor’s claim for construction schedule delay frequently includes:

  1. extended general conditions and additional financing costs; and
  2. loss of productivity.

Critical Path Delay Claims

A well prepared claim by a contractor for damages resulting from an extension to the project completion date will typically include a critical path analysis.  The critical path is a continuous chain of events that form the shortest path from the project’s start date to finish date.  A delay to an activity included in the critical path will increase the overall project duration.  When preparing a delay claim, it is extremely common for a claiming contractor to retain a scheduling expert.  The owner will often retain its own expert to respond to such a claim.

A well prepared delay analysis will reference the project’s original critical path schedule, track progress through the completion of the delay event, and reference the project records.  The most important factor to consider when preparing a delay claim is the project records.  These will include the original project schedule and any amendments made prior to the delay event, meeting minutes, change orders, change directives, contractor notices, requests for information and responses thereto, correspondence and similar documentation.  The second most important factor to consider is first-hand evidence from fact witnesses, such as the project manager or construction manager.

When preparing a delay claim, it is important to evaluate other contributing factors, such as non-critical delay that absorbs schedule float, and concurrent delay.

For example:

  1. one month of non-critical path delay caused by the owner which absorbs the schedule float will not result in a delay of the projected completion;
  2. one month of critical path delays caused by both the owner and the contractor, which are concurrent, will cause a one-month delay to the projected completion date, which delay is excusable but non-compensable, and will result in a one-month extension to the project schedule;
  3. one month of critical path delay caused by the owner will result in a one-month delay to the projected completion date, which delay is excusable and compensable, and will result in a one-month extension to the project schedule completion date;
  4. one month of critical path delay caused by the contractor will result in a one-month projected delay, which is non-excusable, with no change to the project schedule completion date.

In support of a delay claim, contractors often prepare total time/as-built critical path analyses.  These assist in identifying and evaluating causes of and responsibility for delays.  The critical path analyses are often presented in the form of a schedule analysis using scheduling software such as Microsoft Project or Primavera.  Sometimes the analyses are presented in narrative form.  While there is no single method required, it is important to understand that virtually any critical path analysis will include the opinion of the individual preparing the analysis.  It is sometimes said that five different scheduling experts, when presented with the same project and facts, can reach five different conclusions on the amount of and responsibility for project schedule delay.

The typical damages claimed by a contractor for extended schedule duration include additional general conditions, additional financing charges, additional overhead, and sometimes the lost opportunity to bid on alternative profitable work.

Loss of Productivity

A contractor’s loss of productivity occurs when the actual rate of performing specific tasks is less than the anticipated rate of performance.  For example, a contractor may have planned on installing 15 pieces of 10” pipe per day per crew, but due to circumstances alleged to be outside of the contractor’s control, only installed 10 pieces per day per crew.  Factors that can cause a loss of productivity include: learning curve; weather; site conditions; skill level of workers; excessive changes, including the number, frequency and timing; material availability; over-crowding; out of sequence work; stacking of trades; and excessive consecutive hours worked.

A loss of productivity claim is typically calculated using one of two methods:

  1. measured mile; or
  2. total cost claim.

The measured mile method of presenting a loss of productivity claim is the preferred method.  It compares the cost of impacted work with the cost of unimpacted work.  Accordingly, it relies on the actual unimpacted performance on the same project, rather than the contractor’s estimate, as a basis for the claim.  The difficulty is that the measured mile approach is typically difficult to establish.

The total cost claim method compares the contractor’s planned productivity to the contractor’s actual productivity.  Frequent criticisms of the total cost method are that it tends to blur the requirement to prove causation with the requirement to prove damages, it assumes that the original estimate was sound, it assumes the contractor is not responsible for any of the lost productivity, and that it may be tantamount to turning the construction contract into a cost-plus contract, thereby eliminating any risk for the contractor.

There is not an abundance of case law in Canada relating to the total cost method of presenting a loss of productivity claim.  In the United States, an accepted four-part test requires the contractor to establish that:

  1. the contractor is justifiably unable to prove damages by more reliable means;
  2. the bid was reasonable and did not contain material errors;
  3. the claimed costs are reasonable; and
  4. the contractor is not responsible for costs incurred above the bid.

In British Columbia, our trial court appears to have implicitly adopted the American four part test in Golden Hill Ventures Ltd. v. Kemes Mines Ltd., 2002 BCSC 1460, in which the court observed that the complexity of the relationship among the countless small events which occurred on a large complex construction project can render it difficult, if not impossible, to calculate the damages with precision.  In such circumstances, the court is not relieved from its burden of assessing damages and may properly resort to a global approach, rather than a detailed calculation.

Conclusion

Virtually any significant and/or complex construction project will incur schedule delays.  In these circumstances, it is highly likely that the owner or contractor, and frequently both, will advance delay claims seeking compensation from the other.  It is therefore critical that owners and contractors prepare and maintain detailed project records documenting delay events and their effects on the project schedule, and any costs incurred.  It is also important to undertake an objective and independent critical path analysis when it is feasible to do so.  When presenting a loss of productivity claim, the measured mile approach is the preferred method, although it is recognized that, due to difficulty in proving this method, contractors frequently employ the total cost method.  Prudent contractors will eliminate any causes and costs for delay for which they are responsible.

Archives

Categories