Many of the events that result in disputes and claims create situations where work is delayed and cannot proceed along the path included in the project’s baseline or mutually adjusted timeline. Delays cost money for both owner and contractor, and unless dealt with promptly, they tend to escalate in cost and tempers.
The owner has a number of reasons for wanting the project completed on time: the higher cost of construction financing versus less expensive permanent financing, plans to move into the new structure at a specific date, and delivery dates for new furniture and equipment, among others. The contractor’s general conditions are mostly time related: costs of salaries for project and site supervision, field-office rentals, and equipment. Contractors with a backlog of work anticipate moving their project managers and superintendents from the current project to a new one, anticipating that they will be able to do so if that project closes out as scheduled. Along with actual additional costs being incurred, this timely shifting of supervision is of prime importance to the general contractor.
An owner must be alert to the need for prompt review of contractor-generated documents requiring either architect/engineer or owner response so as to avoid the potential for delays. As the requests for information (RFI), requests for clarification (RFC), and proposed change orders (PCO) are issued by the contractor, the owner must monitor the passage of these contractor- or architect-generated queries to avoid any potential delay claims. The owner’s representative should be responsible for reviewing these logs at each project meeting and should act as a prod when one party or the other is lax in processing the necessary information to close out those documents.
The owner must always be aware of events that may create the potential for a contractor delay claim. If the architect/engineer requires a slight push to resolve any contractor-related matters, the owner, after the project meeting and in private, should have a word with the design consultants to determine why documents are not being processed quickly and how they plan to rectify the situation.
To explore the construction-delay process, we should start with some contractor-related quasi-legal terms. An excusable delay is a delay whereby a contractor or owner is allowed a time extension but no monetary compensation. This type of delay can occur when there are acts of God, fires, or transportation delays, over which the contractor or owner has no control; labor strikes, also beyond the owner/ contractor’s control; and unusually severe weather. When there are liquidated damages in the construction contract, the builder will need to extend the project’s completion date even though no costs for extension can be considered. When excusable delays occur and are approved, the architect will issue a no-cost change order with an extension of the completion time agreed upon by contractor and owner.
A concurrent delay occurs when two or more delays are created within the same time frame that impact the completion date and are caused by events created by the contractor and the owner. They cancel each other out, and neither party can recover damages. A compensable delay is one where damages are created and compensation requested. It is a delay caused by one party and within the control of that party, whether it be owner, architect, or contractor. The contractor’s costs may include increased crew size, increased costs of materials and equipment, extended general conditions, or loss of productivity because of the interruption to the orderly sequence of work, to name a few. The owner’s costs are also varied: a landlord guaranteeing occupancy of commercial rental space, the opening of a retail store, or extending financing costs.
The project meeting and the resultant minutes may be the appropriate arena for unresolved matters to be discussed, ball-in-court determinations made, and dates set for resolution. This meeting can act as a tracking device to document the events that have the potential for a delay. The word delay can be incorporated into the minutes to let everyone know that the warning has been made — for example, like the following:
Contractor has not responded to the architect’s Architect Field Instruction #23 issued on September 15, 2009, even though fi rst and second requests have been issued previously. If no response is received by architect on September 30, 2009, any delays and associated costs will be borne by the Contractor.
Acceleration is another one of those construction terms that owners become familiar with. When delays are attributed to an owner’s or architect’s actions or inactions, are recognized as such, and the owner requires the contractor to maintain the original completion schedule, acceleration of the project will be required to meet that contract completion date. The following is a more formal definition of acceleration:
When a project owner recognizes that there have been delays in the construction project that would ordinarily extend the completion date, but directs the contractor to complete the project as originally scheduled, “ acceleration ” has been created.
An owner may take this position for many reasons, but he or she also must be aware of the potential costs this directive can create.
A requirement to maintain the initial completion date can arise when the owner’s new factory must be on-stream as planned to fulfill a large influx of orders. When the owner of a baseball or football sports complex must have that facility ready by Opening Day, the reason to accelerate is obvious.
The added costs to accelerate can be staggering, and few contractors will provide any form of guarantee. These are some of the problems that can occur when a contractor has been directed to accelerate:
- Out-of-sequence work: Instead of working in a linear fashion, moving from activity A to activity B, subcontractors may have to shift crews to more immediate tasks, performing activity G and then going back to normal sequencing. This process of working out of the normal pattern of work as indicated on the baseline or adjusted baseline schedule will increase the total cost of that work.
- Loss of productivity: One of the consequences of out-of- sequence work is the loss of productivity among those workers who had to shift from their normal schedule and take up a task in another part of the building or drop what they were doing and proceed with new instructions. Extended premium-time work has been proven to reduce worker productivity. A seminal study performed by then Business Roundtable in 1993 produced the document “ Scheduled Overtime Effect on Construction Projects, ” which graphically demonstrated the amount of worker productivity lost when construction workers worked several periods of 50- and 60-hour weeks.
- Trade stacking: This occurs when several trades are working in a somewhat confined space to complete a specific component of work. For example, carpenters may be installing a ceiling grid in one or two rooms, and electricians and HVAC workers are also in those rooms installing ceiling light fixtures and air-conditioning and heating ducts. These trades are stacked and working together in these rooms, whereas one trade would normally follow the preceding one. Trade stacking results in loss of productivity.
Acceleration creates other real costs such as expedited deliveries of materials and equipment and premium-time work, but many of these costs are “ guesstimates, ” and an owner will find himself hard-pressed to analyze and agree on the actual costs. So a word of caution: Avoid requesting a contractor to accelerate, but if it is necessary, request a daily accounting, and investigate all of these costs while they are fresh in the minds of everyone who generated them.
When delays occur on a construction site and the contractor’s equipment remains idle during that period of time, she will often claim loss of revenue because that equipment could have generated revenue were the delays not incurred and the equipment was performing “ contract work. ” An idle-equipment claim involves many issues. One is whether the equipment is actually owned by the contractor or rented from an equipment rental company. Using a Caterpillar 350 excavator as an example, if this equipment is rented, rates on an hourly basis would be about $175 per hour. This excludes the subcontractor’s operator cost and the cost of fuel, both of which are not provided by the rental company. If the Cat excavator was rented and the contractor estimated 10 hours to complete a certain portion of work, the estimated cost of that work would be $175 per hour plus the cost of the operator at $40 per hour and possibly $25 for fuel, for a total of $240 per hour. So the total cost of the operation would have been $2,400.
Suppose the contractor had to stop work for three hours because of a delay caused by an owner or because of unusual site conditions, such as the presence of rock in the area of the excavation, The rental of the equipment to the contractor continues to accrue even though the equipment is not working, and, all other things being equal, the contractor may be entitled to reimbursement for downtime on the idled equipment. But since no operator or fuel costs were involved, the loss of productive equipment would be the base rental rate, unless the contractor could not provide the operator with work on another actively operated piece of equipment.
If the preceding scenario involved the same Caterpillar excavator, but instead of being leased, it was owned by the contractor, then even the bare equipment cost of $175 per hour would not be justiied. Although when renting equipment, downtime costs continue to accrue, when the equipment is owned, no such “ ixed ” costs apply. The idle or downtime causes no additional “ wear and tear ” on the equipment. It is not depreciating because it is not operating; no maintenance is required, and its operation life has not been shortened. The rate for downtime or idle time on a piece of owner-operated equipment is much less than its full operational cost. Some experts state that this downtime cost should be anywhere from 30 to 50 percent of the equipment’s operating cost.
A court decision seems to lean toward the 50 percent igure. In the Appeal of Dillon Construction, Inc. (ENGBCA No. PCC-101, November 21, 1995), the court said that when contractor-owned equipment is idled, the contractor could claim 50 percent of the equipment cost as posted in an equipment cost manual. The generally accepted equipment cost manual is the AED Green Book of equipment rental rates. This book lists all types of equipment for excavators and contractors and average rental costs daily, weekly, and monthly, with regional adjustments.
To further guide an owner when claims for lost revenue involve equipment downtime for extended periods of time — a few days, a week, or longer — the contractor owning the downtime equipment has the option of taking it offsite and using it on another, more productive project. If no other revenue-producing source for this piece of equipment was available, the contractor may have a dificult time claiming any costs other that the discounted idle-equipment cost. The responsibility is on the contractor to prove that the equipment could have been productively used elsewhere. In C.Z. Fairly Construction Company (ASBCA No. 32,581 90-2 BAC (CCH), par. 22,665, 1990), the court said that the contractor must establish that the equipment in question could have otherwise been productively employed before claiming downtime costs.
The following are some general rules to consider when dealing with disputes:
- Establish an environment of trust between owner and contractor, which also involves the owner’s design consultants if they appear to be too aggressive in their relationship with the contractor.
- Establish an environment of reasonableness and fairness, not only with the general contractor but with their subcontractors. As the saying goes, walk a mile in the other person’s shoes.
- Avoid the blame game, and recognize that some portion of the problem may lie with the owner and the design consultants.
- Resolve disputes as quickly and as equitably as possible. The longer a dispute remains open, the more hardened positions form barriers to resolution.
- And remember the old saying that in a successful negotiation neither party is entirely happy with the results.