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).
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.