Category Archives: Delay Damages

“CRITICAL PATH” AND “CONCURRENT DELAY” BASICS AS INTERPRETED BY COURTS

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The terms “critical path” or “critical path method (CPM)” are frequently used terms in construction contracts and, importantly, delay-related claims.  These terms refer to the construction schedule and the method to establish delays to the substantial completion date.  To the construction participant,  specifically project management, these terms are must-know terms and are vital to the proper planning and management of the project!  A project is composed of many individual construction activities that are all interrelated.  Each activity has a scheduled duration or the number of days for the activity to be performed.  And, many activities cannot begin until predecessor activities are completed.  Project management needs to understand and appreciate all of this in order to successfully manage a project by the milestone substantial completion date that is agreed upon on the front-end.

 

 

Now, to the non-construction participant or lay person, the terms “critical path” or “critical path method (CPM)” do not mean much because they are not used in everyday language.  However, technical terms that are not part of everyday vocabulary need to be explained so that a lay person that is not a construction participant can understand and appreciate the significance of the terms–think judge or jury!   Oftentimes, the best way to explain the critical path is to analyze  court decisions that have interpreted this term in connection with a construction dispute.  The following are construction cases that have defined or interpreted the critical path:

 

CRITICAL PATH 

 

 

“The critical path is the longest series of the work activities through the performance of a whole project. If an activity on the critical path exceeds its scheduled duration, the termination of the project will be delayed unless some other activity on the critical path is performed in less than its scheduled time. A work activity not on the critical path may be completed later than its scheduled time without affecting the termination of the project unless the non-critical activity exceeds its “float” and thereby becomes an activity on the critical path.”

U.S. Fidelity & Guar. Co. v. Orlando Utilities Com’n, 564 F.Supp. 962, 968 (M.D.Fla. 1983)

 

“The project can be represented by a network of discrete paths that sequence interdependent tasks or milestones leading to project completion. The critical path, the longest path at any point in time, determines the project’s expected completion date.” 

Gulf Contracting, Inc. v. U.S., 23 Cl.Ct. 525, 529, n.2 (Cl.Ct. 1991)

 

 

“Essentially, the critical path method is an efficient way of organizing and scheduling a complex project which consists of numerous interrelated separate small projects. Each subproject is identified and classified as to the duration and precedence of the work. (E.g., one could not carpet an area until the flooring is down and the flooring cannot be completed until the underlying electrical and telephone conduits are installed.) The data is then analyzed, usually by computer, to determine the most efficient schedule for the entire project. Many subprojects may be performed at any time within a given period without any effect on the completion of the entire project. However, some items of work are given no leeway and must be performed on schedule; otherwise, the entire project will be delayed. These latter items of work are on the critical path. A delay, or acceleration, of work along the critical path will affect the entire project.”

Haney v. United States, 676 F.2d 584, 595 (Ct.Cl. 1982)

 

“Critical Path Methodology” (CPM) is a term of art for a method of scheduling and administering construction contracts. The Court of Claims has explained that CPM enables contractors performing complex projects to identify a critical path of tasks that must each be completed before work on other tasks can proceed. A delay on the critical path will thus delay the entire project: Essentially, the critical path method is an efficient way of organizing and scheduling a complex project which consists of numerous interrelated separate small projects. Each subproject is identified and classified as to the duration and precedence of the work. (E.g., one could not carpet an area until the flooring is down and the flooring cannot be completed until the underlying electrical and telephone conduits are installed.) The data is then analyzed, usually by computer, to determine the most efficient schedule for the entire project. Many subprojects may be performed at any time within a given period without any effect on the completion of the entire project. However, some items of work are given no leeway and must be performed on schedule; otherwise, the entire project will be delayed. These latter items of work are on the “critical path.” A delay, or acceleration, of work along the critical path will affect the entire project.”

Morrison Knudsen Corp. v. Fireman’s Fund Ins. Co., 175 F.3d 1221, 1232-1233 (10th Cir. 1999)  (internal citations and quotations omitted)

 

 

As explained, construction schedules contain numerous activities that are interdependent on one another and are required to complete the project.  Each activity contains a duration required to complete the given activity.  Schedules typically identify the milestone of substantial completion.  Most schedules identify the critical path by tracking the longest duration path  through the activities to achieve completion.  If an activity on the critical path is not completed on time, it will delay the completion date.  Sophisticated scheduling software allows contractors to identify each activity’s early start date (earliest time an activity can start provided its predecessor activities are performed), early finish date (simply taking the early start time plus the scheduled duration), late start date (the latest time an activity can start without delaying the completion date by factoring in the scheduled duration), and late finish date (simply taking the late start time plus the scheduled duration).  By showing the early start date and late start date, project management is able to determine the float time with the activity.  In other words, if an activity has both an early start and late start date, the float allows an activity to be delayed from its early start date to its late start date without actually delaying the completion date of the project.  Naturally, there is much more to construction scheduling and determining the critical path (or revising the critical path during the course of construction) than this!  The point is that the critical path, as interpreted in the cases above, is critical because this is really how delays are proven on a construction project (whether the delays are used to offset liquidated damages, establish an entitlement to extended general conditions, or flow down extended general conditions and liquidated damages to the trade subcontractor responsible for the delay):

 

CRITICAL PATH USED TO PROVE DELAYS 

 

 

“Contractors have the burden of proving delays attributable to the Government. It may be impossible to establish government-caused [owner-caused] delays without a means of showing the critical path.”

Daewoo Engineering and Const. Co., Ltd. v. U.S., 73 Fed.Cl. 547 (Fed.Cl. 2006)

 

“In order to prevail on its claims for the additional costs incurred because of the late completion of a fixed-price government construction contract [owner contract], the contractor must show that the government’s [owner’s] actions affected activities on the critical path  of the contractor’s performance of the contract.  The reason that the determination of the critical path is crucial to the calculation of delay damages is that only construction work on the critical path had an impact upon the time in which the project was completed.  One established way to document delay is through the use of Critical Path Method (CPM) schedules and an analysis of the effects, if any, of government-caused events upon the critical path of the project.”

George Sollitt Const. Co. v. U.S., 64 Fed.Cl. 229, 240 (Fed.Cl. 2005) (internal citations and quotations omitted)

 

Sometimes, there are concurrent delays to the project occurring at the same time that both impact / delay the completion date.   Concurrent delays have been defined by courts as:

 

CONCURRENT DELAYS AND APPORTIONMENT 

 

 

 “The doctrine of concurrent delay involves the premise that where both parties to the litigation caused delays then neither party can recover damages for that period of time when both parties were at fault.”

Broward County v. Russell, Inc., 589 So.2d 983, 984 (Fla. 4th DCA 1991)

 

 

“Where both parties contribute to the delay neither can recover damage, unless there is in the proof a clear apportionment of the delay and the expense attributable to each party.”

Blinderman Const. Co., Inc. v. U.S., 695 F.2d 552, 559 (Fed.Cir. 1982) (internal citation and quotation omitted)

 

 

“Courts will deny recovery where the delays are concurrent and the contractor has not established its delay apart from that attributable to the government.”

William F. Klingensmith, Inc. v. U.S., 731 F.2d 805, 809 (Fed.Cir. 1984)

 

 

“[C]ontractor may not collect damages from the government due to delay where that contractor was itself in a state of concurrent delay. Generally, courts will deny recovery where the delays are concurrent or intertwined.  Even where both parties are responsible for delay, a contractor may not recover unless it is able to apportion the delay and expense attributable to each party.The burden of apportioning delay falls on the plaintiff. Courts will deny recovery where delays are concurrent and the contractor has not established its delay apart from that attributable to the government.”

Smith v. U.S., 34 Fed.Cl. 313, 325 (Fed.Cl. 1995) (internal citations and quotations omitted)

 

 

“The general rule barring recovery for government-caused unreasonable delay when there has been concurrent delay caused by the contractor does permit recovery, however, when clear apportionment of the delay attributable to each party has been established. Because the equitable adjustment claim for compensable delay is the contractor’s claim, the burden is on the contractor to apportion the delay between the parties. Generally, courts will deny recovery where the delays  are concurrent or intertwined and the contractor has not met its burden of separating its delays from those chargeable to the Government.”

George Sollitt Const. Co. v. U.S., 64 Fed.Cl. 229, 238-39 (Fed.Cl. 2005) (internal citations and quotations omitted)

 

 

This articles covers just the basic elements of critical path and concurrent delay based on interpretations from Florida and federal courts.  Understanding these terms and how courts have interpreted these terms is important so parties know what they need to do to prove a delay (and how they need to prove the delay and sustain their burden of proof) based on the factual dynamics and circumstances of their dispute.  Without this understanding, parties are not in the best position regarding developing strategy and themes associated with their case to assist is persuasively presenting testimony / evidence to support their position.

 

For more information on substantial completion, please see: https://floridaconstru.wpengine.com/what-is-substantial-completion/

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

WHAT IS SUBSTANTIAL COMPLETION?

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The term “substantial completion” is in most construction contracts. And, it should be. This date marks the date the owner expects to be able to use its project for its intended purpose and, if it cannot, the contractor will (likely) be assessed liquidated damages for the delay to the substantial completion date. The owner’s contractual ability to assess liquidated damages serves to motivate the contractor to substantially complete the project by the agreed date and to reimburse the owner for delay-related damages that cannot be ascertained with a reasonable degree of certainty at the time of the contract.

 

 

A.   How is Substantial Completion Defined

 

 

Under the general conditions of the AIA (American Institute of Architects A201 Document 2007), substantial completion is the “stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use.” (AIA Document A201 s. 9.8.1)   Under the AIA, the architect is required to conduct inspections to determine the date of substantial completion and certifies this date.

 

 

The general conditions of the EJCDC (Engineers Joint Contract Documents Committee C-700 Document 2007) defines substantial completion similarly as:

 

 

“The time and date at which the Work has progressed to the point where, in the opinion of Engineer, the Work is sufficiently complete, in accordance with the Contract Documents, so that the Work can be occupied and/or utilized for the purposes for which it is intended….Substantial Completion cannot occur before the Project is issued a Certificate of Occupancy (or Completion, if applicable) by the governing building department that allows Owner to utilize the entire Project for the purposes for which it is intended.” (EJCDC Document C-700 s. 1.01.46)
Whether it is an AIA, EJCDC, or other industry form document, substantial completion is routinely defined as that point in time when the owner can utilize its project for the purposes for which it is intended.

 

 

A leading case in Florida discussing substantial completion is J.M. Beeson Co. v. Sartori, 553 So.2d 180 (Fla. 4th DCA 1989). This case involved an owner assessing liquidated damages against its contractor. The contractor was hired to construct a shopping center that required substantial completion within 300 days of commencement. The contract provided that substantial completion occurred when “construction is sufficiently complete in accordance with the Contract Documents, so the owner can occupy or utilize the work or designation portion thereof for the use for which it is intended.” J.M Beeson, 553 So.2d at 181. Although two anchor tenants in the shopping center received Certificates of Occupancy within the 300 days, another tenant did not. The owner took the position that substantial completion had not been achieved, irrespective of the Certificates of Occupancy, because items such as landscaping were not completed. The Fourth District dismissed the owner’s position finding:

 

 

“[W]hen the owner can put tenants in possession for fixturing and can begin to collect rents, the owner begins to utilize the work for its intended purpose. When the owner was able to occupy and fixture the constructed space, the construction was substantially completed.”  J.M. Beeson, 553 at 182-83 (internal citations omitted).

 

 

The Fourth District indicated that the substantial completion date occurred no later than the date the shopping center was able to obtain certificates of occupancy for the tenants.  Notably, if the contractor in J.M. Beeson was simply required to build shell retail space where the tenants were responsible for their own tenant improvements, the substantial completion would likely occur when an applicable certificate of completion was issued for the shell space pursuant to the shell permit that would entitle the tenants to begin their individual improvements. See, e.g., Hausman v. Bayrock Investment Co., 530 So.2d 938 (Fla. 5th DCA 1988) (finding that test for substantial completion for property tax purposes is the date property is put to use for which it is intended; in this case, since contactor was building shell retail space, substantial completion occurred when shells were completed).

 

 

If an owner is in a position to use its project for its intended purpose (whether for personal use, public use, whatever the project entails), this really should mark the substantial completion date. This is more of an objective date determined by the governing building department through the issuance of a certificate relating to the permit.

 

 

B.  Contract Drafting / Understanding Tips

 

 

I prefer the substantial completion definition in the general conditions of the EJCDC (above) because it references that this point in time should not be earlier than the issuance of a Certificate of Occupancy (or applicable Certificate of Completion). Even though most contracts give certain discretion to the design professional to determine and certify the date, the fact remains that the Certificate of Occupancy is realistically the date that determines when an Owner can use its project for its intended purpose since it permits occupancy. I often like to tie the substantial completion date in the contract to the Certificate of Occupancy date or Temporary Certificate of Occupancy date (since the TCO date may be the date that allows occupancy under certain conditions) since this more accurately reflects the date the Owner can use its project for its purpose (or, if it is a project for shell space, the Certificate of Completion date that authorizes the tenant to construct finishes / improvements).  Also, this removes some of the discretion from the design professional and shifts their focus to generating the punchlist and working towards final completion.

 

 

From an owner’s perspective, if it agrees to a mutual waiver of consequential damages in the contract, it must absolutely include a liquidated damages provision tied to the substantial completion date. If it does not want to include a liquidated damages provision, then the owner needs to ensure there is not a mutual waiver of consequential damages provision and, if there is a delay to the substantial completion date, be in a position to prove its actual delay-related damages.

 

 

From a contractor’s perspective, it wants to agree to a substantial completion date where arguably there is float built into its schedule to ensure it has enough time to substantially complete the project. Also, it will want to ensure through flow-down provisions in its subcontracts that it has the ability to flow down assessed liquidated damages to responsible subcontractors that impact its critical path.

 

 

From a subcontractors’ perspective, it needs to understand the contractor’s schedule and how the work is sequenced and ideally have input particularly relating to durations for its activities based on the sequencing of the work. Otherwise, the subcontractor could be putting itself in a position where it will be notified of delays since it is unable to meet its required durations.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

ACCELERATION COSTS MONEY

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Contractors know or should know the concept of acceleration because acceleration costs money. Acceleration occurs when a contractor expedites its performance due to an excusable delay (a delay not its fault) in order complete its performance earlier than it would have considering the delay.

 

Contractors accelerate by incurring increased labor costs to work overtime and premium time (nights and weekends), adding more manpower, or adding more crews (which also may mean adding more supervision to supervise the additional labor). These added labor costs are typically direct payroll costs (factoring in labor burden) as well as equipment costs associated with operating the equipment (especially if it is owned equipment) for longer hours or renting additional equipment to be utilized by the additional manpower or crews. In addition, acceleration can result in inefficient labor hours because manpower is now working longer hours, new manpower is added and there is a learning curve associated with new manpower that is not familiar with the work, and the labor is potentially working under resequenced conditions and in congested locations with other trades. Thus, just because the contractor takes reasonable efforts to accelerate does not mean that it is incurring efficient / productive labor costs or that its acceleration efforts are substantially improving the completion date of the project.

 

There are two types of acceleration claims. The first type is the straightforward direct acceleration claim when the government/owner directs the contractor to accelerate its performance to finish the job in advance of the completion date. Many times, in this circumstance, the government/owner understands that it will need to compensate the contractor for the acceleration efforts.

 

Constructive acceleration is the other type of acceleration claim and the type more likely to lead to a dispute because the dispute centers around both entitlement and quantum. Constructive acceleration occurs where the contractor seeks additional time to complete the project due to what it claims are excusable delays, but the government/owner is unwilling to grant the contractor the additional time. To prove construction acceleration, the contractor needs to prove:

 

  1. there was a delay that was not its fault (an excusable delay) that impacted the completion date;
  2. the contractor notified the government/owner of the delay and requested additional time to complete its performance;
  3. the government/owner expressly directed the contractor to overcome the delay and complete the project in a shorter amount of time than the contractor was entitled to factoring in the delay or implicitly directed the contractor to overcome the delay through the refusal to grant additional time; and
  4. the contractor did in fact incur costs in accelerating its performance.

See Armour of America v. U.S., 96 Fed.Cl. 726, 757 (Fed.Cl. 2011) (“To prove a constructive acceleration claim, and entitlement to an equitable adjustment, which Armour [contractor] did not attempt to do during the proceedings before the court, a contractor must show (1) that the contractor encountered a delay that was excusable; (2) that the contractor requested from the government an extension of time due to the delay; (3) that the government denied the contractor’s request for an extension of time; (4) that the government demanded completion of the contract in a shorter amount of time than the contractor was entitled to, given the excusable delay; and (5) that the contractor was required to expend additional resources to adhere to the schedule on which the government insisted.”). See also Fraser Const. Co. v. U.S., 384 F.3d 1354 (Fed.Cl. 2004).

 

 

What is important to remember is not only will the contractor need to prove the excusable delay that impacted its schedule, but it will need to prove it notified the government/owner of the delay and requested additional time to perform which was denied. After proving all of this, the contractor will still need to establish that it actually accelerated its performance and incurred costs in doing so.

 

As a basic example, assume a project was to be completed December 31, 2014. This marked the date the owner needed to use the project for its intended purpose. However, due to excusable delays (assume many owner-directed change orders and/or design-related issues), this completion date is postponed a year to December 31, 2015. The contractor notified the owner of the delays and impacts to its schedule and requested an extension of time to complete the project; but, for whatever reason, the owner refused to grant additional time and implicitly demanded that the contractor complete the project on schedule. The contractor, as the result of the owner’s refusal to grant additional time, accelerated its performance to finish the project earlier than December 31, 2015 and to avoid the consequence of the owner assessing liquidated damages (i.e., the contractor accelerated to mitigate the impact of the delay). Based on the contractor and its subcontractor’s efforts, the project was completed on May 30, 2015–5 months after the original completion date, but 7 months before the contractor should have been complete considering the excusable delays. In this basic example, the contractor’s acceleration efforts mitigated the overall delay by approximately 7 months (the difference between May 30, 2015 and December 31, 2015) even though the contractor finished 5 months later than the original schedule. The contractor will need to prove the costs associated with these acceleration efforts.

 

It is good practice for contractors to work with attorneys and experts to preserve the acceleration claim and prove the excusable delays through a critical path schedule analysis and the costs incurred in accelerating performance.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

RECOVERING DELAY RELATED DAMAGES FROM PUBLIC PAYMENT BOND

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One of the advantages to subcontractors of public payment bonds issued under the Federal Miller Act (or even the Little Miller Act) is that there is an argument for the recovery of unexecuted change orders and, and as it particularly pertains to this article, impact-related costs (whether delay or inefficiency / lost productivity). This should not be overlooked although language in the governing subcontract, etc. could dilute these arguments. However, having the argument and opportunity to recover impact-related costs from a payment bond is a huge upside.

 

If a subcontractor is owed money for inefficiency or delay, etc., and there is a public payment bond in place, it should not automatically forego pursuing these claims against the bond. Unlike a lien where these types of costs / damages are not lienable and could render an otherwise valid lien fraudulent in Florida, these are damages that could be pursued against a public payment bond. The subcontractor should carefully craft its argument in furtherance of maximizing its best chance to recover these types of damages.

 

For example, in the opinion of Fisk Elec. Co. v. Travelers Cas. and Sur. Co., 2009 WL 196032 (S.D.Fla. 2009), a subcontractor sought inefficiency / lost productivity damages against a payment bond surety that appeared to be issued under Florida Statute s. 255.05 (also known as Florida’s Little Miller Act). The payment bond surety moved to dismiss the subcontractor’s complaint arguing that these types of damages are not recoverable under the bond. The Southern District, relying on federal cases interpreting the Federal Miller Act, found that a subcontractor can pursue such damages against the payment bond for its out-of-pocket unreimbursed expenses. See, e.g, U.S. f/u/b/o Pertun Const. Co. v. Harvesters Group, Inc., 918 F.2d 915, 918 (11th Cir. 1990) (finding that subcontractor could recover under Federal Miller Act bond for out-of-pocket expenses resulting from prime contractor’s delay).

 

To maximize the recoverability for impact-related costs, the costs should be supportable costs that the subcontractor actually incurred in the performance of its contract work. Organizing the back-up supporting these costs and theory of the impact is critical and the subcontractor looking to pursue these costs from a public payment bond should consult counsel to best position its arguments to support recovery.  On the other hand, the prime contractor should ensure that its subcontract has contractual provisions that will make it challenging and provide hurdles for the subcontractor to recover such damages.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

SUPPORTING CONSTRUCTION DEFECT DAMAGES WITH AN ESTIMATE

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One of the issues in construction defect disputes is whether the owner can prove damages with an estimate, which is often the case. Recently, in Kritikos v. John T. Anderson d/b/a Anderson Builders, et al., 38 Fla. L. Weekly D931a (Fla. 4th DCA 2013), the Fourth District Court of Appeals confirmed that an estimate as to the costs to repair construction defects can support a plaintiff’s (owner) damages. In other words, the plaintiff does not actually have to incur the costs to repair in order to be entitled to recover damages to correct a construction defect.

 
In this case, the contractor recorded a construction lien. The owner asserted, as a defense, that it is entitled to set-off the amount of the lien due to construction defects and delay-related damages. (The owner in this case ended up terminating the contractor when the project was substantially over budget and behind schedule.) It was the owner’s position that the defective work was subject to a design change so the measure of damages needed to be based on an estimate of what it would cost to complete the work (i.e., repair the defects) according to the original design / contract. The owner’s argument, as supported by the Fourth District, was based on precedent discussing an owner’s measure of damages when there is a construction defect, particularly the Florida Supreme Court decision of Grossman Holding Limited v. Hourihan, 414 So.2d 1037 (Fla. 1982) and the Second District Court of Appeals’ decision of Temple Beth Shalom & Jewish Center, Inc. v. Thyne Construction Corp., 399 So.2d 525 (Fla. 2d DCA 1981).  Both the cases of Grossman and Temple Beth Shalom maintain that the measure of damages when dealing with construction defects / unfinished construction contract is the reasonable cost to complete / repair per the original design / contract provided this does not result in economic waste. Kritikos, supra.

 
The key is that whether using an estimate or actual costs to support damages from a construction defect, the measure of damages is the reasonable cost to complete per the original design / contract (versus a subsequent and better design to repair the defects) provided that the repair costs do not amount to economic waste.

 
Interestingly, this case also discussed the owner’s set-off for delay damages. It is uncertain in this case whether the owner utilized any expert to establish delay damages, which is often and properly the case, or how the owner specifically presented the delay damages (as there is no discussion that there was a liquidated damages provision in the contract). The Fourth District simply stated: “Delay damages were properly presented to the jury. By their very nature, delay damages may not be subject to exact calculation, making the owner’s opinion of the value of his loss of use of his property admissible and relevant.” Kritikos, supra. Based on this limited statement, it would seem that these damages are not referring to liquidated damages or delays to the critical path of a construction schedule, but rather an owner (without any expert testimony) testifying as to “loss of use damages,” i.e., an owner testifying that due to the circumstances of the case, he/she was damaged by being not being able to utilize his residence. But, it is uncertain what the owner did to support these damages.

 

 

For more information on loss of use damages, please see: https://floridaconstru.wpengine.com/the-difference-between-lost-profit-and-loss-of-use-damages/

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.