Under Construction - March 2013: Tips for Presenting, Analyzing and Resolving Delay and Impact Claims

by Snell & Wilmer
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Contractor and subcontractor claims seeking relief—time and often money—for impacts due to delay, acceleration, disruption and loss of productivity and/or efficiency are common, as are disputes arising from such claims that must be resolved through negotiation or mediation, or awarded by courts, arbitrators, hearing officers, dispute review boards and/or similar tribunals. In some cases, the owner, and its representative or design professional providing construction administration services, may dispute or reject the contractor’s or subcontractor’s claim based on a lack of prior and proper planning and execution or the terms and conditions of the contract or subcontract. This article provides tips to contractors and subcontractors, as well as to owners and their consultants, on how to review the contract and subcontract, how to properly plan and execute performance, and how to present, analyze and resolve claims due to delays and impacts.

Know the Prime Contract and Subcontract
Before executing a contract or subcontract, each party should become familiar with the provisions applicable to the schedule, the contractor’s ability to manage and modify its and the subcontractor’s work plan, schedule and sequence, and the ability for the contractor and subcontractor to seek relief from changes to and impacts upon the contractor’s and/or subcontractor’s work plan and schedule. A contract or subcontract that has an enforceable no “damages-for-delay” clause may prevent the contractor or subcontractor from obtaining any money as a result of delays. The terms and conditions in the prime contract regarding, without limitation, what delays are excusable, what the contractor must prove to be entitled to an excusable delay, what Time Impact Analysis (TIA) must be provided to the owner, and what time extension and/or damages the contractor may be entitled to arising out of the delay, are critical in evaluating what the contractor may or may not be entitled to or whether or not the owner is instead entitled to liquidated damages for loss of use and/or actual damages as a result of the delay. Likewise, the terms and conditions in the contract and subcontract are critical to the success or failure of claims by a subcontractor.

Estimate and Document the Work Plan Accordingly
Every contractor and subcontractor should, upon estimating and bidding a project, prepare a written plan for the performance of the work, including, where appropriate, a work plan showing the scheduling, sequence and durations of various items of work, as well as resource loading in a baseline schedule upon which the contractor’s contract amount was based. Similarly, the owner and its consultant should obtain, analyze and, if appropriate, comment upon the contractor’s work plan and schedule. Some contractors and many subcontractors fail to prepare this initial and critical foundation to a successful delay or impact claim. If the contractor or subcontractor cannot demonstrate what it originally planned for the performance of the work, that its original plan was logical and reasonable, and that its contract price was based upon this schedule, the owner and its consultant (and the courts or arbitrators) may give little credence to the contractor or subcontractor’s later complaints that its original plan was impacted.

           
Follow the Contract and Work Plan
Once the contract and subcontract language has been agreed to and the initial work plan has been developed, it is incumbent on the contractor and subcontractor to follow both the contract (and subcontract) and the work plan. The contractor and subcontractor should prepare and submit daily reports as to labor and other resource utilization and note any project conditions that have delayed or impacted the subcontractor’s performance. The owner and its consultant should do the same or, alternatively, periodically review and comment upon the daily reports submitted by the contractor to attempt to maintain an objective record of the progress of the project. The contractor and subcontractor should provide prompt written notice to the owner and contractor, as applicable, of any impacts in accordance with the time periods set forth in the contract and subcontract. The contractor and subcontractor should then follow up in a timely manner (and in the manner required by the contract and/or subcontract, as applicable) to present a quantification of time and/or money sought as relief. Any deviations from the work plan should be noted and explained in contemporaneous project records, which are usually the most persuasive evidence. The contractor should provide accurate monthly updates showing the as-built status of the schedule, without manipulating the schedule by unreasonably changing durations, logic ties, lags, leads or activities. The contractor must follow the steps set forth in the contract if claiming excusable delay and/or time and/or costs as a result of such delay. Actual costs directly attributable to the impact should be separately tracked throughout the project and presented. The contractor and subcontractor will generally have the burden of proving that the impact/delay was caused by the owner (or that the owner is otherwise responsible, for example, by design deficiencies for which the owner is responsible), that the impact/delay caused the contractor and/or subcontractor to be delayed or impacted for a certain period, and that the impact/delay caused the contractor and/or subcontractor to be damaged so many dollars (additional general conditions, additional labor costs and similar costs).

Document Agreements (or Not)
When changes occur, they must be documented. If the owner and contractor, or the contractor and subcontractor, agree on the scope, time and/or cost impacts of a change, those should be documented in a change order. In the absence of such agreement, the contractor or subcontractor should request that the owner or contractor, as applicable, issue a construction change directive or similar written order to the subcontractor documenting the instruction regarding the change. If the owner or contractor orders work orally and fails or refuses to document the instruction, it is incumbent on the contractor or subcontractor to submit prompt written notification to the owner or contractor of the direction/change to preserve the contractor or subcontractor’s later claim. Likewise, the owner should police these notices and clarify the notice if necessary.

Just as important as providing notice and substantiation of a claim is the impact of waivers or releases. Change orders, payment applications and related lien waivers and releases often contain broad boilerplate language that may waive or release any and all claims up through the date of the change or payment, whether or not previously presented. Some states provide legislative protections to contractors and subcontractors as to the effectiveness of such waivers, but many do not. A contractor or subcontractor should not sign a change order, payment application or lien waiver or release containing language that waives or releases claims if it is not the contractor or subcontractor’s intent to grant such a waiver or release, as most tribunals will later find in favor of the owner and deny relief on that basis. The owner and its consultant should similarly review the change order, payment application and lien waiver language to confirm that the change, time and/or payment agreed is consistent with the intent of the parties’ agreement and that further claim rights are not being reserved unless the parties so intend. Taking these steps can help prevent surprises and expensive litigation down the road.

Consult Attorneys and Experts Early
Consultation with knowledgeable legal counsel and claims consultants early in the process can help all parties maximize the likelihood of the successful pursuit or defense of claims. The attorney should hire the expert first as a consultant to preserve the work product privilege. Both the attorney and the consultant can provide a critical analysis of the contract and subcontract, the original work plan, the impacts, the costs incurred, and the likely factual and legal defenses. This can help the contractor and subcontractor develop a persuasive claim, and similarly help the owner and its consultant develop a persuasive defense, that may then lead to an early negotiated or mediated resolution in lieu of the more expensive, time consuming, and relationship-damaging lawsuit or arbitration that may result after the parties have become too entrenched in their positions over time. Whether in negotiation or before a tribunal, simply demanding the highest number calculable usually does not maximize recovery. Moreover, obvious gaps in proof will undermine the credibility of the contractor or subcontractor. Similarly, wide variations in the claim computation, as it is presented over time, tend to create doubt in negotiations and dispute forums as to the legitimacy of the claim. The earlier the parties obtain knowledgeable legal and expert consultation, even if behind the scenes, the greater the likelihood a path to successful recovery can be identified and followed.

By following these tips, contractors, subcontractors and owners can likely better position themselves to seek, defend and, more importantly, resolve, more quickly and amicably, claims for delays and impacts.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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