Construction Scheduling
Construction Corner: the Legal Consequences of Construction Delays – (a Refresher)
Ben M. Ochoa
March 20, 2013
The success or failure of a commercial construction project depends largely on the construction schedule and whether that schedule is met. Delays in the construction schedule negatively impact both owners and contractors. Delays cause owners to absorb additional costs by not being able to use or occupy their property for its intended purpose. Delays negatively impact construction contractors by driving up the costs of construction resulting from having to pay for a workforce and/or equipment that sits idly by as the delay continues. In addition, contractors may incur increases in the price of construction materials and fuel during the delay, resulting in increased overhead costs and general conditions. Given the severe monetary impact construction delays may have on both owners and contractors, it should come as no surprise to anyone involved in the construction industry that delays in completing a construction project are a primary source of disputes, claims, and litigation.
Once a construction project starts to experience delays, the finger-pointing begins and the lawyers get called. Colorado, like most states, recognizes several different "types" of delays for a construction project. Some of these delays are excusable, some are not. Some are compensable, and some are not.
Excusable and Inexcusable Delays
As with most construction projects, the construction contract usually determines whether a construction delay is excusable or not. Typically, excusable delays are delays that result from events that are beyond the contractor's control. Examples of these types of delays include: acts of God (force majeure), unanticipated severe weather, unanticipated site conditions, design errors, labor disputes/strikes, and owner-directed change orders. Depending on the express terms of the contract, when these types of delays are encountered, the contract completion time is often extended without compensation to the owner.
Conversely, inexcusable delays are delays caused by events that are within the control of the contractor. Examples of these types of delays include: delays caused by anticipated weather conditions, improper scheduling by the contractor, inadequate workforce staffing, poor supervision, and delays associated with the repairs of the contractor's defective work. Depending on the specific terms of the construction contract, these delays are often times compensable to the owner by the payment of either liquidated damages or actual damages by the contractor.
Compensable Delays
In a delay situation, the "innocent party" may be compensated for the delays by the payment of money, the addition of time to complete the project or both.
In the case of excusable delays, a contractor may be compensated by the owner by the allowance of additional time to complete the project. The additional time to complete the project often results in the payment of additional money to the contractor to cover its additional costs and overhead incurred as a result of having to be on a project for a longer period of time.
In the case of inexcusable delays, the owner may be compensated by the payment of actual damages incurred as a result of the delays. If, as is often the case, actual damages are difficult (if not impossible) to calculate, many construction contracts include a liquidated damages provision. A typical liquidated damages provision allows the owner to be paid a sum certain for each day a project is completed after the agreed upon project completion date.
Caution: If the parties opt for the inclusion of a liquidated damages provision in their construction contract, the owner must be sure that the liquidated damages amount is reasonable and not generally disproportionate to the actual loss or injury to be sustained in the event of delay. Otherwise, a court may deem the liquidated damages clause to be void as an unenforceable penalty. Rohauer v. Little, 736 P.2d 403 (Colo. 1987). In such an event, however, the owner may still be entitled to recover its provable actual damages resulting from the delay.
Concurrent Delays
Concurrent delays occur when both parties bear some of the responsibility for the construction delays or when there are multiple delays that occur during the same time period. Here, because both parties are at fault, most courts find that neither party is entitled to monetary compensation. In those circumstances, however, most courts will add time for the completion of the project.
Key Contractual Provisions
Given the severe monetary impact construction delays may have on the parties, owners and contractors need to carefully negotiate the various time-related provisions in their contract. In addition to the time for completion and liquidated damages provisions discussed above, "time is of the essence," "no damages for delay," "waiver of consequential damages," "acceleration" and "termination" provisions should be carefully drafted, reviewed, and negotiated by the parties. Perhaps the most important time-related provision in a construction contract is the "time is of the essence" clause. In Colorado, inclusion of this provision in a construction contract renders each of the other timerelated clauses material to the contract. Kole v. Parker Yale Dev. Co., 536 P.2d 848 (Colo. App. 1975). Thus, if the construction contract does not include a "time is of the essence" provision, then the other time and delays provisions may be deemed immaterial and, therefore, unenforceable by either party.
Conclusion
In addition to saying "you may delay, but time will not," Benjamin Franklin also said "time is money." While it is doubtful that Ben was thinking about construction delays when he coined these phrases, his words are spot-on. Delays incurred during a construction project can have severe negative impacts on the bottom line for owners and contractors alike. Care must therefore be taken during the drafting and negotiation of construction contracts to ensure that the parties' financial interests are adequately protected in the event delays result in the late completion of the project.
The content of this article is intended to provide general information and as a guide to the subject matter only. Please contact an Advise & Consult, Inc. expert for advice on your specific circumstances.
SOURCE: www.lexology.com