Construction delays are one of the most common disputes that arise on projects. However, the process of establishing and proving a delay claim can get complicated quickly. That’s why having a comprehensive understanding of the necessary elements to justify a delay claim can be a priceless advantage. At the same time, understanding the ins and outs of delay claims can also help construction businesses defend against improper claims, too.
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How do you Classify Construction Delay Claims?
To determine the impact of a construction delay, the delay must be appropriately classified. This is a tiered classification system, it involves answering one question, then moving on to the next. The main classifications of construction delays are:
- Critical vs. Non-Critical
- Excusable vs. Inexcusable
- Compensable vs. Non-compensable
This will all make more sense in a second, I promise.
Want to Avoid (or at Least Minimize) Delays in the First Place?
Critical vs. Non-Critical
This is the first and most important question to answer: Was the delay critical or non-critical?
A critical delay is one that will affect the project completion date (or some other important milestone date on a project). Critical delays can’t really be made up – they just tack on extra time. Non-critical delays will affect the completion of specific activities, but not the completion date or the date of some important milestone. The determining factor is whether the delay extends the Critical Path Method (CPM) of the project.
A CPM schedule will set out a timeline of the most extended activities throughout the project. It will establish the minimum amount of time it will take to complete these “critical” activities. These critical activities need to be performed at specific times and in a particular order to allow the next critical phase to begin. If the delay has no effect on the project’s critical path, then the delay is non-critical and may involve a simple change order to correct the delay.
Excusable vs. Inexcusable
Once you have determined if the delay is critical or not, you will need to establish whether the delay is an excusable one. An excusable delay is one that allows the contractor an extension of time, compensation, or both.
Why? Because these delays are out of the contractor’s control. The common excusable delays should be outlined in your contract. The most natural example of excusable delays is when a delay falls under a force majeure clause – events such as natural disasters or terrorist attacks. Excusable delays can also result from errors or omissions in the plans or even simple issues that were caused by the client.
Inexcusable delays are those where the contractor was entirely responsible for extending the project’s duration. If this is the case, then the contractor will be liable for any costs or damages caused by the delay. This can be a result of delayed mobilization, late submissions, failure to obtain permitting (if they’re responsible for it), or general poor planning on behalf of the contractor.
Take a Deeper Look: Inexcusable Delays vs. Excusable Delays, Broken Down
Compensable vs. Non-Compensable Delays
Lastly, is the delay a compensable one? When a delay is “compensable,” that means the party affected by the delay should be given either an extension of time or compensation for the delay of their work.
All excusable delays are compensable. Meaning, any time a delay is considered “excusable,” the contractor will generally have a claim for a time extension, compensation, or both! If the contractor is solely at fault, the delay will very likely be non-compensable. Non-compensable delays can fall under any of the other categories, depending on the situation and contract terms.
Damages for Delays
For owner-caused (or other contractor-caused) delays, a contractor may have a claim for:
- Project management & supervisory expenses
- Loss of use
- Loss of rents
- Lost profits
- Insurance costs
- Construction loan interest
For contractor-caused delays, an owner may have a claim for:
- Supervision costs
- Extended general conditions
- Jobsite trailer rental
- Temporary facilities/utilities
- Liability insurance
- Equipment rental & maintenance costs
- Field labor
- Increased materials cost
- Lost productivity
- Hourly labor rate increases
Right to Finish Early
Even if your work was ahead of schedule, you might still have a valid delay claim. Let’s say you had planned on finishing work earlier than the contract completion date and encounter an owner-caused delay. You may still finish on time, but you were still delayed! And worse yet, all the costs you intended on saving by completing early are now lost. The owner benefited from not having to pay out for delays because you were prudent and ahead of schedule.
So if a contractor at the outset of the project, (a) intended to complete the contract early, (b) could do so and (c) would have finished ahead of schedule but-for the owner’s actions – they could still have a valid delay claim!
What are Some Defenses to Construction Delay Claims?
Whether a construction business is making a delay claim or defending against one, it’s important to know what factors might affect the viability of a construction delay claim. Here are some of the more prominent defenses for delays.
A concurrent delay occurs when multiple activities affect the project’s timeline, but the delays don’t precisely stack on top of each other. That doesn’t necessarily mean the delays have to happen at the exact same time to be considered concurrent. Instead, if multiple delays do occur and they each independently impact the completion date, the delays can be regarded as concurrent – at least to some degree. If a delay truly is concurrent with some other delay on the project, then that can be used as an argument against compensating for the accused delay. Proving that a delay was concurrent often requires extensive expert analysis and documentation evidence. The challenge here is how to allocate the amount and of fault and liability of each party.
No Damages for Delay Clause
Because delays are so prevalent in the construction industry, construction contracts often include a no damages for delay clause (a.k.a. no pay for delay). This essentially declares that delays are all part of the business, and any costs associated with them should be written off. The result? Eat any losses, request a time extension, then move on.
Enforceability of these clauses varies depending on the jurisdiction. Most states have prohibited or at least limited these provisions – so be sure you know how your state handles these. If a no damages for delay clause is allowed, there are still certain exceptions to enforceability. Some exceptions might be where delays:
- are not covered by the clause language,
- are not contemplated at the time of contracting,
- sustain for an unreasonable time,
- result from active interference by the owner, or
- result from a fundamental breach of contract by the owner that justifies the non-enforcement of the clause.
Deep Dive: A Breakdown of No Damages for Delay Clauses
Construction contracts are chock-full of notice requirements. Most courts take these notice provisions seriously: no notice, no claim. Contractors should familiarize themselves with these from the outset of the project. Any time a delay is encountered, send a project delay letter to the GC or owner immediately. It also helps to provide photos, documentation, or other reports to support the complaint. Where notice is required, but not sent, even the most worthy of construction delay claims can falter. It’s imperative to understand what notice is required under the contract and when that notice must be sent.
Time is of the Essence
This is a peculiar one, but it could definitely affect a claim. A “time is of the essence” clause means that the contract will hold everyone responsible for completing the agreed upon work by the agreed upon time. Seems obvious, right? Still, if “time is of the essence” language is in the contract, that means that any delay (even minor ones) could be considered a material breach of the contract!
Force Majeure Events
We touched on these earlier. If the contract does have a force majeure clause, it will typically list a few triggering events like floods or fires. However, other events can fall under this category as well. Force majeure generally covers any occurrences that were (a) not reasonably foreseeable at the time of contracting, (b) beyond the control of the parties, and (c) not caused or compounded by negligence. Consequently, when one of these events occur, performance will either be suspended or excused depending on the contract terms and the duration of the disruption.