The construction project is late. Very late. The owner is upset and notifies the contractor that it is assessing liquidated damages. The contractor, in turn, claims that the project is late because of excusable, compensable delays and, perhaps, excusable, noncompensable delays. This is a common and unfortunate story between an owner and contractor on any late construction project. Now the fun begins regarding the allocation of the delay!
Through previous articles, I discussed that in this scenario the burden really falls on the contractor to establish that the liquidated damages were improperly assessed against it and, thus, it is entitled to additional time and/or extended general conditions as a result of excusable delays. Naturally, this requires the contractor to develop a critical path analysis (time impact analysis) allocating the impacts / delays (and the reasons for the impacts/ delays) to the project completion date. The reason the burden really falls on the contractor is because the owner’s burden is relatively easy – the project was not complete on time pursuant to the contract and any approved changed orders.
In a recent opinion, East Coast Repair & Fabrication, LLC v. U.S., 2016 WL 4224961 (E.D.Va. 2016), the court contained a very detailed and sound discussion regarding this common story between an owner and contractor. Although this is a case involving a ship repair company overhauling and repairing a Navy (government) vessel, the court’s discussion would apply to any late construction project and the allocation of delay to a late project. Please take the time to read the Court’s discussion below as it lays the framework for the allocation or apportionment of delay.
In the context of litigating liquidated damages assessed by the government in a construction contract, the government first must meet its initial burden of showing that “the contract performance requirements were not substantially completed by the contract completion date and that the period for which the assessment was made was proper.” Once the government has met that burden, the burden then shifts to the contractor “to show that any delays were excusable and that it should be relieved of all or part of the assessment.”
In order for the contractor to carry its burden it must “demonstrate that the excusable event caused a delay to the overall completion of the contract, i.e., that the delay affected activities on the critical path” because the contractor “is entitled to only so much time extension as the excusable cause actually delayed” completion of the contract.
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Having considered the somewhat conflicting positions taken on this issue in prior federal cases, this Court finds that the better legal interpretation regarding the proper treatment of “sequential delays” (where one party causes a delay followed by a separate-in-time delay caused by the other), is that “apportionment” should be permitted when the evidence provides a reliable basis on which to determine which party is responsible for which delay. Stated differently, the fact that the Government was solely responsible for some delays in this case…does not preclude the Government as a matter of law from recovering some amount of liquidated damages as a result of subsequent, and conceptually distinct, delays deemed to be solely the fault of ECR/Técnico [Contractor and its subcontractor].
As to performance delays deemed to be “concurrent,” (both parties causing a delay at the same time), the established law reveals that ECR [Contractor] is permitted to seek an extension of the project completion date for such delay, as long as the delay caused by the Government would have disrupted the “critical path” in the absence of the delay caused by the contractor. However, while ECR may seek an extension of the performance period for a concurrent delay, ECR is precluded by law from obtaining a monetary award to compensate it for “delay damages” for such delays, with the appropriate relief being only the extension of the project completion date (which, in effect, results in a day-for-day reduction of the Government’s liquidated damages claim).
East Coast Repair & Fabrication, supra, at *13-14 (internal quotations 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.