Delay and disruption issues can come up in any project. This article offers an initial introduction and explains the legal requirements for both delay and disruption claims, and practical ideas.
Delay and disruption claims are two similar, but distinct concepts. As the Bell BCI Co. v. United States court summarized, “Although the two claim types often arise together in the same project, a ‘delay’ claim captures the time and cost of not being able to work, while a ‘disruption’ claim captures the cost of working less efficiently than planned.”
Contractors have the burden of proving the same elements for both of these claims: liability, causation, and damages. They can usually establish the requisite liability by pointing to:
Causation can usually be shown if the events were:
The damages element is distinct for the two claims. Proving a delay claim requires the contractor to show it was delayed on one of its critical path activities because of someone else’s actions, and how that delay cost it additional dollars in general conditions, standby costs, or otherwise. Typically, to obtain a time extension or additional compensation for extended performance based on the terms in the contract, the delay generally must affect overall project completion, meaning, the delay must be critical. Additionally, recovery may be barred to the extent the contractor was responsible for any concurrent delay or if the contract has a valid no damages-for-delay clause.
On the other hand, loss of productivity claims are instead concerned with unanticipated increases in the costs incurred to perform any given work activity. In other words, the contractor incurred more labor costs to get the job done because it had to work overtime, it had to use more employees than planned, or there was stacking of the trades or other causes making it less efficient. It is irrelevant for loss of productivity claims whether the impacted activities lie on the critical path, although loss of productivity is often a consequence of a prior delay. While it may not necessarily require a precise calculation, proving how the contractor was less productive typically requires utilizing a methodology recognized by the courts. Sample methodologies include: actual cost method (if actually tracked during the project); measured mile; similar work comparison; specialty and/or general industry studies; and, modified total cost method (some or all of which may require expert testimony).
The Project’s Facts: Contract Provisions and Practical Issues During the Job
With the above general elements in mind, the specific contract’s requirements are the next area to focus on. While contracts will vary, the contract’s definitions and other pertinent sections are crucial. Focus on definitions and terms like: Substantial Completion/Time; Date of Commencement; Scheduling (i.e. Critical Path Method); Disruption/Lack of Productivity; Claim Provisions for Delays (Unexcused vs. Excused Delay) (Compensable vs. Non-Compensable Delays); Claims and Notices of Claims, No Damages for Delay and Disruption Clauses; and Concurrent Delays. Important provisions in the contract can include provisions relative to the schedule of work, the contractor’s ability to manage and modify the work plan, schedule and sequence, and its ability to seek relief from the owner arising out of changes to and impacts upon its work plan and schedule. Notice and claims provisions will almost certainly affect the claims process.
Because they can govern how claims will be addressed, it is important everyone (owners and contractors) understand the contract’s obligations and terms before contracting. Certain terms, such as a “no damages for delay/disruption” clause, could be the subject of negotiations.
After agreeing to terms, documenting the contractor and subcontractors’ work is the next issue. Both the owner and contractors should carefully document the work during construction in order to prove or be able to defend against such claims on the project. The contractor typically has the burden of proving how the delay or disruption impacted it, and the amount of its damages. Generally, contemporaneous notes and explanations for deviations from the work plan (including photos/videos) are most persuasive. Other ideas owners and contractors can consider include:
Even after work has started, the parties should understand the documents they are signing. Change orders, payment applications, and related lien waivers and releases may contain language which may fully resolve, waive, release, or otherwise affect delay and disruption claims.
Cumulative Impact Claims
Beyond the release and waiver concerns associated with signing a change order, the cumulative impact is another issue to consider. The cumulative impact is the corresponding ripple effect on the base contract and other change order work when a project requires numerous change orders. Cumulative impact problems are likely to follow:
The same principles for delay and disruption claims apply to cumulative impact claims. Practically, this means parties may want to document the ripple effect and associated costs of numerous change orders as soon as they identify a possible cumulative impact claim. This can be difficult, and an expert may be necessary.
Consider Both the Prime Contract and the Subcontract Requirements
When any delay or disruption claim arises out of something for which the owner may be responsible, a contractor may want to work with their subcontractors to prove their claims. Given there are typically multiple tiers of contracts involved, it is important to evaluate what the subcontractors’ responsibilities are. In addition to the prime contract’s terms, consider looking at subcontract provisions covering the same issues discussed above, as well as delay or disruption claims caused by owner or for which owner is responsible, and delay or disruption claims caused by prime contractor or for which prime contractor is responsible. The subcontractor’s remedies are likely limited by the prime contractor’s obligations and responsibilities to the owner, and the prime contract. For example, the prime contractor is likely obligated to provide the owner written notice within a certain number of days of knowledge of the facts giving rise to the event for which the claim is made. Because the prime contractor is obligated to notify the owner within a certain amount of time, the subcontractor needs to tell the prime contractor even earlier.
Getting the Right Help
Finally, contractors and owners should consider finding the right help. Consultation with knowledgeable legal counsel and claims consultants early in the process may be helpful in analyzing potential claims. The attorney may want to keep work product and privilege protections in mind when hiring the consultant. The attorney and the consultant can analyze the relevant contracts, original work plan, impacts, costs incurred, and the likely factual and legal defenses.
When you meet, the lawyer may want to see:
Before a claim is even filed, a consultant can be helpful for interpreting construction plans, explaining industry usage and standards, and offering a realistic analysis of the performance. This can help negotiate an early and advantageous settlement. If the attorney retains a consultant at the outset, the consultant may be able to help obtain and preserve important evidence for later use (site inspections; photographs/video; repair/redesign efforts; and damage mitigation efforts).
Delay and disruption claims are a complicated and fact-intensive issue for all parties involved. They require evaluating actions before the work (understanding the contracts), during the work (record-keeping), and after there is a problem (working with attorneys/consultants). Keeping these ideas in mind should help you navigate the next delay or disruption issue you come across.