…MORE ON DELAY CLAIMS AND THE BURDEN OF PROOF SUBSTANTIATING DELAY

Posted on February 23, 2025February 23, 2025 by David Adelstein

How about some more on DELAY claims and the burden of proof substantiating delay.

Delay claims can no doubt be complex – factually and legally. They warrant expert opinions further bolstered by fact witness testimony from the folks that lived the details and issues. If you need assistance with a delay claim, make sure you have the right representation to best position the claim, the arguments, and the burden of proof to substantiate the claim. Otherwise, you’ll be navigating murky waters in dealing with issues and facts that rarely will be one-sided.

Claims relating to delay can be a driving item on construction projects with back-and-forth positions / arguments and differing expert opinions. From the contractor’s perspective, to recoup time and money, the delay needs to be excusable and compensable. Below is a snippet from the Court of Federal Claims explaining the contractor’s burden in proving an excusable, compensable delay:

“[N]ot all delays are excusable, and furthermore, not all excusable delays are compensable.” Compensable delay is delay where “the government [is] the sole proximate cause of the contractor’s additional loss, and the contractor would not have been delayed for any other reason during that period.” Sequential delay is defined as delay “where one party and then the other cause different delays seriatim or intermittently.” “If a period of delay can be attributed simultaneously to the actions of both the [g]overnment and the contractor, there are said to be concurrent delays, and the result is an excusable but not a compensable delay.” Plaintiff “has the burden of establishing by a preponderance of the evidence” the existence of any excusable delay, compensable or otherwise

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A compensable delay analysis requires the Court to look at each specific instance of excusable delay plaintiff is entitled to and determine if the government is “the sole proximate cause of [plaintiff]’s additional loss, and the contractor would not have been delayed for any other reason during that period.” Consequently, the Court cannot decide whether plaintiff is entitled to any compensable delay until it decides if plaintiff is entitled to excusable delay. Further, the government’s blanket assertion that any excusable delay caused by weather, logs, clay, or debris was concurrent with plaintiff’s delayed start, defective equipment, project planning, and personnel management is unavailing because it does not assess each specific instance of excusable delay to which plaintiff is entitled. (“[I]n the event of concurrent delays, the contractor ‘can attempt to prove the portion of the delay attributable to the government[ ] that was separate and apart from the contractor’s delay.’ ”). The government correctly states, and plaintiff acknowledges, plaintiff “has the burden of establishing by a preponderance of the evidence” the existence of any excusable delay, compensable or otherwise.

Marine Industrial Construction, LLC v. U.S., 158 Fed.Cl. 158, 207 (Fed.Cl. 2022) (internal citations omitted).

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.

TIME IS MONEY ON CONSTRUCTION PROJECTS AND CATEGORIES OF DELAY

Posted on February 17, 2025February 17, 2025 by David Adelstein

As we know on construction projects, the adage “time is money” always applies. It applies to contractors just as much as owners.

If a project is delayed, a contractor incurs additional overhead costs known as general conditions and general requirements which are driven by time. Similarly, an owner experiences its own delay damages driven by time which can be in the form of loss of use, increased or additional financing, and increased or additional consulting (architect/engineering) costs.

From an owner’s perspective, an owner’s damages are oftentimes captured in a negotiated liquidated damages clause designed to capture owner’s delay damages by liquidating the daily amount. A contractor typically would prefer liquidated damages versus the unknown and uncapped exposure of actual damages which could be astronomical depending on the project. A contract could also include a stipulated daily rate for the contractor’s delay damages (general conditions and general requirements) which a contractor may or may not want to negotiate and include. Regardless, this all stems from the adage “time is money” which means what it says to all parties on a construction project.

Just because the project is delayed does not mean a party gets to recover delay damages. Only if it were that easy. The delay still needs to be proven, particularly by the contractor, that would need to prove entitlement to its own delay damages and rebut any late completion argument by an owner looking to assess liquidated damages.

The below from the Court of Federal claims sheds light on the categories of delay on federal construction projects which, likewise, would have merit on all projects:

“The general rule is that ‘[w]here both parties contribute to the delay neither can recover damage[s], unless there is in the proof a clear apportionment of the delay and expense attributable to each party.” Courts will deny recovery where the delays are concurrent and the contractor has not established its delay apart from that attributable to the government.

“Delays generally fall into one of three categories: (1) excusable and compensable; (2) excusable but not compensable; and (3) not excusable.” Judges of the United States Court of Federal Claims have stated that “[f]ederal regulations provide for extensions of time for excusable delays (e.g., unusually severe weather), but do not provide for equitable adjustments for such delays.” “Moreover, to result in an excusable delay, ‘the unforeseeable cause must delay the overall contract completion; i.e., it must affect the critical path of performance.’ ”

“When a contractor seeks an equitable adjustment for government-caused delay, ‘the contractor has the burden of proving the extent of the delay, that the delay was proximately caused by government action, and that the delay harmed the contractor.’ ” “The Government’s liability for delay-related damages is limited to those delays that it caused and that hew to the project’s critical path.” Determination of the critical path is necessary for determining compensable delay because “ ‘only construction work on the critical path ha[s] an impact upon the time in which the project [is]completed.’

LCC-MZT Team IV v. U.S., 155 Fed.Cl. 387, 457-458 (citation and internal citations omitted).

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For a delay to qualify as excusable and compensable, the Government must have been ‘the sole proximate cause of the contractor’s additional loss, and the contractor [must] not have been delayed for any other reason during that period.’ This obligation thus includes the requirement that ‘there was no concurrent delay on the part of the contractor.’”

Id. at 489 (citation omitted).

RECOVERING UNABSORBED HOME OFFICE OVERHEAD DUE TO DELAY

Posted on May 15, 2022May 15, 2022 by Edward Garber

In the preceding article, I discussed the use of a retrospective as-built delay analysis in a case before the Civilian Board of Contract Appeals (CBCA). This case also discussed a damages component in certain delay claims known as unabsorbed home office overhead—a challenging damages component to recover because this deals with indirect costs as opposed to direct costs.

Unabsorbed home office overhead is a damages component when the contractor is on standby, but this is NOT as easy as just claiming standby thereby you are automatically entitled to unabsorbed home office overhead. There are requirements that MUST be met.

To obtain an equitable adjustment for unabsorbed home office overhead as compensation for being on standby, [the contractor] must initially show “[1] a government-caused delay of uncertain duration,” that “[2] the delay extended the original time for performance” or precluded the contractor from finishing earlier than scheduled, and that “[3] the contractor [was] on standby and unable to take on other work during the delay period.

CTA I, LLC v. Department of Veteran Affairs, CBCA 5826, 2022 WL 884710 (CBCA 2022) quoting Nicon, Inc. v. U.S., 331 F.3d 878, 883 (Fed. Cir. 2003).

Regarding the first element of a government-caused delay, the contractor’s workforce is not required to be completely idle during this standby period, but there needs to be an “indefinite ‘interruption or reduction of the contractor’s stream of income from direct costs incurred,’” namely:

It simply requires that [its home office] overhead be unabsorbed because performance of the contract has been suspended or significantly interrupted and that additional contracts are unavailable during the delay when payment for the suspended contract activity would have supported such overhead.

Suspension or delay of contract performance results in interruption or reduction of the contractor’s stream of income from direct costs incurred. Home office overhead costs continue to accrue during such periods, however, regardless of direct contract activity. Consequently, this decrease in direct costs necessary to support the continuing overhead creates unabsorbed overhead, unless home office workers are laid off or given additional work during such suspension or delay periods. Even then, fixed overhead costs usually remain.

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When the period of delay or suspension is uncertain…and the contractor is required by the government to remain ready to resume performance on short notice, the contractor is effectively prohibited from mitigating such overhead costs by making reductions in home office staff or facilities

Interestate General Government Contractors, Inc. v. West, 12 F.3d 1053, 1057-58 (Fed. Cir. 1993)

Moreover:

[I]f the contractor can make out a prima facie case of (1) above, i.e., that the government-imposed delay was uncertain and that the government required the contractor to remain on standby, ready to resume full work immediately, the burden shifts to the government to show either (1) that it was not impractical for the contractor to obtain “replacement work” during the delay, or (2) that the contractor’s inability to obtain such work, or to perform it, was not caused by the government’s suspension.

Melka Marine, Inc. v. U.S., 187 F.3d 1370, 1375 (Fed. Cir. 1999)

The formula to calculate unabsorbed home office overhead is known as the Eichleay formula (after an Armed Services Board of Contract Appeals’ decision).

There are three steps in determining recoverable damages under the Eichleay formula: “(1) find the allocable contract overhead by multiplying the total overhead cost incurred during the contract period by the ratio of billings from the delayed contract to total billings of the contractor during the contract period; (2) find the daily contract overhead rate by dividing the allocable contract overhead by the number of days of contract performance; and (3) determine the amount recoverable by multiplying the number of days of delay by the daily contract overhead rate.” Melka Marine, Inc. supra, n.3. This Eichleay formula will require the assistance of an expert to calculate.

In the case before the CBCA, the contractor sought unabsorbed home office overhead for numerous delay periods. However, only one 178-day delay period truly satisfied an entitlement to unabsorbed home office overhead, and that was a delay attributable to asbestos. The government directed the contractor to stop work due to the discovery of asbestos and then, subsequently, terminated the contract for convenience. This asbestos delay stalled the project and was a standby period of an indefinite duration until the government terminated the contract for convenience. The government did not notify the contractor that the contractor could leave the project and take on other work during this period and simply remobilize without consequences and provided no evidence the contractor could even take on other work during this period. CTA, supra.

Remember, not every delay period results to an entitlement to unabsorbed home office overhead. But if the “standby” argument could be met, as discussed above, and an expert is utilized to assist in calculating the Eichleay formula, there is a basis to recover these indirect costs.