Portions of this post first appeared in “Article 8, Time,” Chapter 8 in The 2017 A201 Deskbook, American Bar Association (ABA) Forum on Construction Law (2017), co-author Jeremy S. Baker
Benjamin Franklin famously quipped “lost time is never found again.”
While building projects can be accelerated to recover lost time, this aphorism reveals a truth of the construction industry: proper time and schedule management can mean the difference between success and failure on many design and construction projects.
Delay-Related Cost and Schedule Claims: A Good Way to Lose Your Shirt
Commercial projects can be time sensitive. Project owners and real estate developers often rely on anticipated revenue from completed projects to service construction loans. Often, owners and developers commit to tenants, and have signed leases which promise to deliver the yet-to-be constructed property, before a shovel goes into the ground. In other cases, owners and developers might ‘miss the market’ if they cannot sell the newly developed project when they expect. Untimely delivered project may jeopardize an owner’s business or cause it to incur additional costs and lost revenue.
Contractors and designers, like architects and engineers, commit staff and resources based on assumptions about project duration and phases of work. They can also get hurt by project delay.
A delayed project may cost a contractor extended general conditions-type costs and home office overhead, plus myriad other kinds of economic impacts. Contractors need to keep their people and equipment busy. This means looking ahead, from project-to-project. As soon as a contractor lands one project, it is planning ahead for how its resources will transition off that project and on to the next one. This is not a criticism of contractors. It is just reality. And it is easy for delay on one project to hurt contractors, causing a cascading effect of negative consequences on other projects, and for the contractor generally. Simply put, project delay often equals contractor and subcontractor change orders.
The same is true for architects and engineers. Project delay hurts. The economics of running a design firm are not all that different than law firms that bill on an hourly basis. Leaders of architecture and engineering firms assess a project, make assumptions about the level of ‘internal production effort’ is needed to execute the design, peg them to a fee structure – and hope producing the design does not take longer or cost more or turn out to be more complex than planned, eroding their profits. Designers might reasonably expect to collect ‘additional services’ fees for a substantially delayed project.
The blinding flash of the obvious? Project delays often lead to claims for more time and money.
What’s less obvious is that many delay claims are, if I can be blunt, garbage.
Real Delay Claims Are Framed In Terms of the Project’s Critical Path
Not all design and construction project delays are created equal.
The materiality of delay often depends on whether the delayed activity is on the “critical path” of the project schedule. Many construction contracts, particularly agreements used on large or complex projects, address the critical path concept with detailed and thoughtful contract terms. This complex concept is relevant to most properly framed contractor claims for extra time and money arising from project delay.
Often, delays to non-critical path activities are not accepted as grounds for extensions of the Contract Time or contractor claims for additional money. This is not always true. The analysis is necessarily contract-specific and fact-specific. However, critical path delays are generally more likely to jeopardize project deadlines and lead to extra costs than other delays.
Here is an unsatisfying definition of the critical path: “the longest path through the network of identified and logically sequenced construction activities that establishes the minimum overall project duration.” 5 Bruner & O’Connor, On Construction Law, § 15:5 (West 2016).
Now, don’t get me wrong. That is among the best definitions of the critical path I have seen. And there is no more authoritative treatise of design and construction law than Bruner & O’Connor.
However, that definition of the critical path might be a real ‘head scratcher’ for people who don’t think much about the sequence of construction projects – and whether a delay to one project activity will always, sometimes, or never delay other follow-on activities which come later in time.
The Critical Path of the Project Schedule: Simple In the Abstract
The critical path is actually a simple idea. Most people in the design and construction industry know instinctively that delay to picking out interior finishes, like kitchen cabinets, and delay to pouring the concrete foundation of a new building, will have different effects on the project schedule.
- Interior finishes are one of the last elements added to a project. They are not on the critical path of the project schedule until its very end of the project. Late selection of interior finishes will not delay most aspects of the project. The building can be framed and the mechanical systems can be ‘roughed in’ even if the interior finishes are not selected.
- By contrast, most every activity on a new construction project will be pushed back if the concrete foundation is not poured in a timely manner. The building cannot be framed and the mechanical systems cannot be ‘roughed in’ before the foundation is poured. That is because the foundation is a predecessor activity that sits early on the critical path.
The extra cost and inconvenience associated with delay to non-critical path activities can be far less substantial than those associated with critical path delays. Failure by the contractor to timely complete activities on the critical path can cause cascading delays to other scheduled activities, potentially jeopardizing timely completion of the entire project.
When we represent project owners and developers who face contractor claims to increase the Contract Sum or Contract Time based on alleged delays, our response is usually simple: Show us the Critical Path! If the contractor cannot prove its critical path work was delayed, it will need to have a very good explanation why the alleged delay entitles it to more money or more time to complete its work.
Again: the blinding flash of the obvious, right?
Generally, yes. In the abstract, the critical path concept can be rather simple. If you have seen a row of dominoes falling, with one knocking down the next, you know enough to get the basics of critical path scheduling. At least if you consider the critical path in “two dimensions.”
The Critical Path of the Project Schedule in Real Life: Intensely Complex
In the real world, tracking the critical path of a design and construction project can be much more complex. Much. Much. Much more complex. There is considerable room to debate the criticality and interdependent nature of real world design and construction project activities.
Think about a three-dimensional space where the dominoes fall not just forward, but also up and down. Now think about a lively debate about how many dominoes there are, where they are located, and which ones knocked down – or could even knock down – the other ones.
Now, add lawyers and their cost and schedule consultants to the mix. These advocates are not paid to seek truth, but to advocate on behalf of their clients. There is plenty of room for construction lawyers and their cost and schedule experts to debate – in good faith – the critical path.
There is room for considerable good faith disagreement about who was responsible for delay, the criticality of the delay, how and whether the delayed activities it affected interdependent tasks, etc., when you apply the critical path method of schedule analysis to the specific facts and circumstances of any design and construction project. That’s just reality.
Let me put it this way: in fifteen plus-years of arbitrating and litigating design and construction project cost and schedule claims, I have never seen parties involved in claims agree on the critical path. That is not because the claimants are crazy or acting in bad faith.
It is because retroactively pinning down the accurate critical path, on a real life project – where the facts and sequence of events are complex, and millions of dollars are at stake – is like asking advocates for their clients’ position to solve an arithmetic equation with a few thousand variables. The activities of the many project participants need to be considered on a daily basis over the life of the project.
There is a moral hazard there, and I do not mean that in a pejorative way. Construction attorneys and their cost and schedule experts have considerable room, within the realm of good faith, to disagree about how to solve that complicated equation. There is almost no such thing as “one true critical path.”
This is something you can take to the bank: analyzing delay-related claims for extensions of the Contract Time or increases in the Contract Sum are among the most complex kinds of design and construction project claims. There is nothing more complex than a real high-stakes delay claim on a complex project.
So How Do You “Win” Delay-Related Claims for Extra Time and Money?
This one is easy. Project participants who are involved in cost and schedule claims arising from design and construction project delays need experienced counsel and forensic experts.
Delay claim combatants need advocates who understand that the judges and arbitrators who will decide the dispute will be presented with competing but credible arguments for where the critical path of the project schedule lies, and what that means for whether a party is entitled to an extension of the Contract Time or increase in the Contract Sum.
In design and construction project delay claims, it is not enough to merely marshal the facts with a credible cost and schedule expert, and present the trier of fact – whether it is a judge or arbitrator – with their view of where the critical path lies, and what that means for the claims. That is table stakes. That is what you need to walk into the dispute and maintain credibility.
To prevail on design and construction project delay claims, project participants need experienced advocates – cost and schedule experts, and construction attorneys – who know how to make their opponents case fall apart. Experienced advocates can almost always find flaws with certain foundational principles behind their opponents’ position, and topple it like a stool missing a leg.
That kind of strategic advocacy cannot be taught through a webinar, book, or law school course. You can only learn this advocacy in the trenches. Construction lawyers adept at defeating delay-related claims for increases to the Contract Sum and extensions of the Contract Time have battle scars.
No, Really – How Do You “Win” Delay-Related Claims to Increase the Contract Sum?
Okay if you’ve read this far, I’ll share some of the secret sauce…
First and foremost, it is almost always a mistake to view a delay-related claim for extra money as a single “big” claim. You wouldn’t try to eat a footlong sub in a single bite. And you probably wouldn’t read a long book were it not broken up into chapters. The same is true with delay claims.
To be clear, this is not about creating an appetizing bite sized story for the jury. If you’re looking for an idiom, “don’t put all your eggs into one basket” is more apt.
With design and construction claims, there is always a risk the finder of fact – whether it is a judge, jury, or arbitrator – will penalize a party for adopting ‘too greedy’ of a position. For more on this, check out my video: What Is Betterment – The “No Free Lunch” Rule – In Design And Construction?
The point is parties who take an “all or nothing” approach to prosecuting and defending delay-related claims for more money risk getting what they ask for, i.e., nothing.
I believe it is often far more strategic to present the “big fat delay claim” as a series of smaller claims, each with their own explanation (basis for liability) and quantum (damages).
Just like a circuit breaker prevents your on-the-fritz hairdryer from burnin’ down the house – this approach allows you to have your cake and eat it too.
You can go for all, presenting your most aggressive position – while inviting the factfinder to exercise any instinct he or she may have to deny part of your position by doing just that: denying only part of your position, not rejecting the whole thing.
This can be particularly important in arbitration. While not universally true, judges tend to be more “formalistic” and “legalistic,” and much more willing to completely shoot down a claim or defense.
Construction arbitrators, by contrast, tend to be more willing to do substantial justice – or as I call it, “jobsite justice.” They are more likely to draw upon their years of design and construction law experience to get to what they view as a fair arbitration award, disallowing those parts of they claim they feel are unjustified.
Presenting a delay claim as a series of smaller claims, each with their own basis for liability and damages, is like serving a meal from an a-la-carte menu. Perhaps you divide the claim into a dozen parts, and advocate them all with gusto…but know that the 2-3 more questionable aspects of your position can be easily cast aside by the factfinder, leaving your core position intact.
BUT HERE’S THE RUB: sometimes the opposite strategy works best!
If your position is better supported, better formulated, and better supported by contract, the facts and the law than your opponent’s position, you might be better to force the trier of fact to make the decision a binary one: win or lose. Particularly if you are the defendant, and your opponent is doing a lousy job at rising to the challenge of meeting its burden of proof.
Look, this stuff is complicated. There is no “one-size-fits-all” strategy for presenting and defending against delay-related claims for extra time and extra money.
As I mentioned above, there is no substitute for experience. Construction lawyers adept at defeating or prevailing on delay-related claims usually have battle scars.
But I digress…
The second important principle – when it comes to presenting and defeating delay claims which seek to increase the Contract Sum – is that such “delay claims” are rarely about delay. They are almost always about money. This means it can be a mistake to over-emphasize the “here is what caused the construction project delay…” aspect of the dispute while paying too little attention to the “…and that led to delay-related extra costs in the amount of…” aspect of the dispute.
Here is a secret: when you tear apart a delay claim for extra money, rarely do you find congruence between the “why” (or liability) and “how much” (or damages) aspects of the claim.
Let me make this less abstract.
In one particular delay claim, my opponent spent 90% of the time screaming about something my client allegedly did wrong to cause project delay. The lawyer had not sharpened his pencil enough to realize that only 10% of his client’s claim for damages had any nexus to the delay-causing acts allegedly committed by my client. The truth was, some 90% of the dollars my opponent allegedly incurred due to my client’s acts were caused by something for which my client could not possibly be responsible: a bid bust.
In other words, our contractor opponent in that claim had miscalculated its initial bid – and entered into a bad business deal, with insufficient dollars for it to make the profit it desired – more than a year before our client committed the acts which allegedly caused delay. This was, clearly, not our client’s problem.
So what did we do in the hearing room? We allowed our opponent to exhaust himself making a silly argument that missed the target. When he stopped, we asked “are you done yet”? And when he said yes, our cost and schedule expert took the stand and helped everyone in the room understand how much time he wasted not understanding the difference between a dime and a dollar.
Now, we did not concede the dime. Fighting for every inch and argument you can credibly maintain is one habit that dies hard. However, we did help the neutral understand that – were she at all persuaded by our opponent’s argument – its best recovery was ten cents, not a dollar.
Next, our cost and schedule expert presented a symphony in a dozen parts, explaining precisely where our adversary in this design and construction delay claim truly incurred its extra costs.
Like I said, delay-related claims which seek to increase the Contract Sum are often about one thing: money.
If you want more of the secret sauce, contact us. We sell it by the bottle.
So what are the technical principles behind winning design and construction project delay claims?
We will try to answer that below, and then circle back to a critical point: having a good design and construction contract with proper schedule-related terms helps a lot!
The Critical Path Method (or CPM Method) of Schedule Analysis
The “Critical Path Method” or “CPM” is an analysis technique used to both manage the critical path of ongoing projects and to analyze delay claims.
On some projects, the critical path of the project is a focal point of project management. The critical path is tracked and debated on a daily, weekly, and monthly basis. This is true even absent delay claims. The vast majority of projects, however, pay no mind to the critical path. It does not come up until mid-project or project end, when delay claims arise.
How do complex projects closely track and monitor the critical path? With recurring schedule updates and other metrics to objectively monitor progress of the work.
- Construction project schedulers use the CPM to analyze interdependent schedule activities and to determine whether delay to a particular activity may jeopardize schedule milestone dates or overall project completion.
- This allows CPM schedulers to determine the anticipated minimum total duration of the project and whether it is on track to achieve the applicable time limits and milestones.
- If the project is not on track, the CPM can assist schedulers to determine the most advantageous way to “recover” the schedule to achieve key milestone dates.
Little or no attention is typically paid to the critical path on smaller projects that lack complex interdependent activities. Luckily, the critical path can often be forensically reconstructed to analyze delay claims, even on projects not actively managed using CPM techniques – if sufficient contemporaneous data can be marshaled as to the actual sequence of activities that occurred during the time periods in question.
When I am asked to assess a delay-related claim for more money or more time on behalf of my project owner and real estate developer clients, I quickly ask after the critical path. Often, my owner and developer clients say “it wasn’t tracked” or “there is none” on this project, or something similar.
That is a mistake. It is the wrong way to think about the critical path. No matter the project, the critical path of activities on its schedule can almost always be retroactively identified by forensic cost and schedule experts working in tandem with design and construction attorneys, and their clients’ project records.
When I say recreate the critical path with project records, I am not just talking about looking at scheduling documents and data. Literally every project record can be relevant. In order to get the “day-by-day” and “play-by-play” account of how the project transpired, we take all the data points we can get. Every email. Every text. Every drawing update. Every submittal, RFI, and change order. You get the idea.
The point? Unless the delay-related claim for more time or money is really low-dollar or simple – unless the disputing parties are in a compromising mood, and are willing to make a business decision to settle the delay claim without getting to its merits – it is kind of crazy to not study the critical path as a reference point to either accepting or challenging the delay claim.
How Can Construction Attorneys Make Best Use of the Critical Path Method?
This one is easy: hire a skilled cost and schedule expert.
It is one thing for a construction attorney to understand the key concepts behind cost and schedule analysis, viewed through the framework of CMP analysis. Construction attorneys need this basic skillset to effectively manage their experts and effectively cross-examine opposing experts.
Actually doing the expert analysis, studying the project-specific facts and data to meaningfully determine the critical path of the project schedule – and what all that complexity means for delay-related claims which seek extra time and money – is another thing all together. In order for a person to be an expert in CPM analysis, cost and schedule claims need to be the expert’s full time job.
This excellent “Glossary of Project Management Terms” – which is available on the internet, was published by Simon Fraser University, and focuses on schedule and CPM-related concepts – gives you an idea of the complexity of the subject, and how much effort it takes a cost and schedule expert to truly become an expert in CPM analysis. Here is a glossary of CPM analysis and construction cost accounting concepts your expert must understand, and help you understand:
Actual Cost of Work Performed (ACWP)
Actual Finish date (AF)
Actual Start date (AS)
Arrow diagramming method
Baseline Finish date (BF)
Baseline Start date (BS)
Budget at Completion (BAC)
Budgeted Cost of Work Performed (BCWP)
Budgeted Cost of Work Scheduled (BCWS)
Cost Performance Index (CPI)
Cost variance (CV)
Critical path method (CPM)
Early Finish date (EF)
Early Start date (ES)
Earned value (EV)
Earned value analysis
Estimate at Completion (EAC)
Estimate to Complete (ETC)
Free float (FF)
Graphical Evaluation and Review Technique (GERT)
Late Finish date (LF)
Late Start date (LS)
Maximum number of segments
Minimum segment duration
Non-standard logical relationship
Organizational breakdown structure (OBS)
Precedence diagramming method (PDM)
Program Evaluation and Review Technique (PERT)
Project Management Body of Knowledge (PMBOK)
Project network diagram
Schedule performance index (SPI)
Scheduled Finish date (SF)
Scheduled Start date (SS)
Total Float (TF)
Work breakdown structure (WBS)
Again, this “Glossary of Project Management Terms” is not my creation. Simon Fraser University published the list on the internet. I make no claim to copyrighted works. If you want to see the definitions of those the CPM analysis terms set out above, click the link in the preceding sentence.
How Do Construction Contract Terms Relate to Delay Claims?
Delay claims cannot exist without minimal schedule-related terms in a construction contract.
This is another one of those blinding flash of the obvious points: without a construction contract to set out deadlines for contractor performance, it is hard to argue the contractor was “late.”
Less obvious are the many other “gray areas” that can be resolved by sound construction contract schedule terms, or not. Most construction contracts provide “light” treatment of scheduling issues and leave many important questions unanswered:
- What if only some of the delayed activities are not on the critical path of the project schedule?
- What if they are on the critical path but do not cause the contractor to incur extra costs or delay project completion?
- What if the contractor and owner cause concurrent delay, i.e., independent delays that overlap in time?
- What if the project is delayed for reasons beyond the control of both the owner and contractor?
- What are their respective obligations to give notice of, and to mitigate, schedule delays?
- What circumstances entitle a contractor to additional time or money, or both?
Merely including a “Commencement Date” and dates for “Substantial Completion” and “Final Completion” in a construction contract will not resolve these issues.
In major projects, it is common for construction contracts to spend several pages addressing the nuance of these schedule and delay-related issues.
To some extent, this is a virtue.
The very act of two project participants coming together to thoughtfully negotiate a design and construction contract has many benefits, including getting everyone on the same page.
Also, at the risk of getting on my soapbox, you should not count on a lawsuit to save you from a bad “business deal” set out in bad design and construction contracts.
Okay, I cannot resist the soapbox: The courts that resolve business disputes – like design and construction disputes – are in the predictability business, not necessarily the justice business. If you expect a judge or arbitrator to hear you complain about project delay, you might not find a sympathetic audience if you’ve overlooked schedule and delay-related terms in your contract.
But there are a few problems with “loading up” a contract with pages of schedule and delay terms:
- I have never had a client tell me they want me to make their design and construction contract longer. Quite the opposite. On a good day, I will only get a few complaints about how little my clients like to read “right sized” design and construction contracts. Most of my clients will not be giddy if I drop a few extra pages of complex delay and schedule language into their contracts.
- These concepts that underlie delay-related claims for more time or money are complicated. To deploy them meaningfully, I need an engaged client, and an engaged negotiation counterparty, to come together on the “business deal” behind fulsome schedule and delay terms in construction contracts. It is not good if only the lawyers understand what the contract means.
- There is no clear line of demarcation between “small and simple projects” that do not require fulsome schedule and delay terms in construction contracts, and “big and complex projects” which would benefit from them. Some of my clients consider a $10 million dollar construction contract as a smaller one. Others consider a $100,000 construction contract a substantial one.
This is one reason why it is so difficult for standard-form contract documents — including those published by the American Institute of Architects (AIA), the Engineers Joint Contract Documents Committee (EJCDC), the Design-Build Institute of America (DBIA), and ConsensusDocs — to “right size” their terms regarding schedule and delay.
AIA Document A201-2017, Article 8 (Time)
Take for example the AIA’s flagship A201-2017 General Conditions of the Contract for Construction. I think the A201 General Conditions is a great contract document – and I argue in this video it is among the most important contract documents on U.S. design and construction projects.
However, even Article 8 (Time) of the A201-2017 General Conditions gives comparatively light treatment to the important question of a contractor’s entitlement to extra time and money if delays occur. This is the full text of Article 8:
ARTICLE 8 TIME
§ 8.1 Definitions
§ 8.1.1 Unless otherwise provided, Contract Time is the period of time, including authorized adjustments, allotted in the Contract Documents for Substantial Completion of the Work.
§ 8.1.2 The date of commencement of the Work is the date established in the Agreement.
§ 8.1.3 The date of Substantial Completion is the date certified by the Architect in accordance with Section 9.8.
§ 8.1.4 The term “day” as used in the Contract Documents shall mean calendar day unless otherwise specifically defined.
§ 8.2 Progress and Completion
§ 8.2.1 Time limits stated in the Contract Documents are of the essence of the Contract. By executing the Agreement, the Contractor confirms that the Contract Time is a reasonable period for performing the Work.
§ 8.2.2 The Contractor shall not knowingly, except by agreement or instruction of the Owner in writing, commence the Work prior to the effective date of insurance required to be furnished by the Contractor and Owner.
§ 8.2.3 The Contractor shall proceed expeditiously with adequate forces and shall achieve Substantial Completion within the Contract Time.
§ 8.3 Delays and Extensions of Time
§ 8.3.1 If the Contractor is delayed at any time in the commencement or progress of the Work by (1) an act or neglect of the Owner or Architect, of an employee of either, or of a Separate Contractor; (2) by changes ordered in the Work; (3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section 126.96.36.199, or other causes beyond the Contractor’s control; (4) by delay authorized by the Owner pending mediation and binding dispute resolution; or (5) by other causes that the Contractor asserts, and the Architect determines, justify delay, then the Contract Time shall be extended for such reasonable time as the Architect may determine.
§ 8.3.2 Claims relating to time shall be made in accordance with applicable provisions of Article 15.
§ 8.3.3 This Section 8.3 does not preclude recovery of damages for delay by either party under other provisions of the Contract Documents.
When it is substantially revised, the most substantial edits to A201-2017 Article 8 are typically reserved for Section 8.3. This Section lightly treats the important question of a contractor’s entitlement to extra time and money if delays occur.
- The standard AIA text of Section 8.3.1 identifies certain causes of excusable delay that entitle contractors to extensions of time.
- Section 8.3.3 is a single sentence that leaves open the possibility of the owner and contractor asserting delay-related claims for monetary damages against each other.
Aside from comparatively light treatment in a handful of clauses outside of Article 8, the standard text of AIA Document A201 does not specify what would justify delay-related claims for extra money.
As discussed below, owners on large or complex projects often modify A201-2017 Section 8.3 to require the contractor to show, as a precondition of receiving extra money for delay, that unforeseeable factors beyond the contractor’s control delayed its critical path activities and increased its cost so it justifies extra compensation.
This is NOT CRITICISM of the A201-2017 General Conditions
Now, I want to be clear about my intended meaning: this is NOT a criticism of the AIA or the A201-2017 General Conditions. It is very difficult for publishers of standard-form contract documents to “right size” contract terms around delay and schedule. Going ‘light’ is probably a better strategy.
In fact, were the A201-2017 General Conditions to devote pages to delay and schedule terms, it would probably be a less useful contract document. It would probably be a detriment to most design and construction projects in the U.S. which use the A201-2017 General Conditions for the already weighty contract document to be loaded down with pages of contract terms around delay and schedule.
The terms of Article 8 suffice for many small and simple projects — particularly when read in connection with other provisions that affect Contract Time, including Section 3.10 (Contractor’s Construction Schedules). The standard AIA text of Article 8 often remains unedited even when an owner and contractor take the time to negotiate custom changes to other articles of AIA Document A201.
For larger and more complex projects, the standard AIA text of Article 8 is often supplemented with additional terms. A201-2017 Section 8.3 (Delays and Extensions of Time) is often modified to more explicitly specify when a contractor is entitled to additional time or money if project delay occurs.
At the risk of making a shameless plug for design and construction attorneys, I will note that our job is to customize and “right size” contract forms for our clients. Our job is to add additional contract terms – like those related to delay and schedule – when appropriate for our clients and their projects.
In fact, I recorded a video on the subject: How Do Construction Attorneys Help Deliver Successful Projects? Check it out!
One Framework To Determine If a Contractor Is Entitled to Extra Time or Money: Compensable Delay, Excusable Delay and Non-Excusable Delay
One framework to determine if a contractor is entitled to additional time or money is to characterize delays as either “compensable,” “excusable” or “non-excusable.”
Those exact terms and categories may not appear in a particular contract. However, often, contract terms that address delays and extra costs may nevertheless have the effect of categorizing delay-related claims along similar lines.
- A delay is sometimes considered “compensable” to the contractor when the delayed activities are on the critical path, if the delay is caused by the owner (or parties for whom the owner is legally responsible), if the contractor incurred actual costs because of the delay, and if the contractor is not responsible for causing a concurrent delay. In such cases, depending on the specific contract and particular facts in question, the contractor may be entitled to both additional time and money from the owner.
- A critical path delay may be considered “excusable” but not “compensable” when the contractor and the owner (or parties for whom the owner is legally responsible) cause concurrent delay. Depending on the specific contract and particular facts in question, concurrent delay can sometimes entitle a contractor to additional time but no additional money. Delays caused by factors a contractor cannot control or predict may also be considered excusable. Contracts sometimes provide that contractors are entitled to additional time, but no additional money, for “force majeure” type delays to the critical path beyond the reasonable control or anticipation of both the owner and contractor.
- A delay may be considered “non-excusable,” entitling the contractor to neither additional time nor money from the owner, if the delay is caused by the contractor (or parties for whom the contractor is legally responsible) and if the owner (and parties for whom the owner is legally responsible) have not caused concurrent delay. Non-excusable delays can result in owner claims against the contractor, particularly when the delayed activities are on the critical path and cause the owner to incur additional costs.
The “compensable,” “excusable,” and “non-excusable” delay categories are just generalizations. There are many possible ways to address contractor entitlement to additional time and money if delays occur. Resolution of this issue typically turns on an intensely fact-specific and project-specific analysis.
A Framework to Revise AIA Document A201-2017, Article 8 (Time)
As noted above, the most substantial edits to A201-2017 Article 8 are typically reserved for Section 8.3. Below is one example of how to revise Section 8.3 using concepts similar to the framework addressed in the prior section. These edits focus on and build upon Section 8.3.3 of A201-2017.
Section 8.3.3 may be revised to explicitly identify delay events that entitle the contractor to additional time or money. Such edits have many possible permutations because no two contracts or projects are alike. The model clause set forth below is not appropriate for all contracts or all projects. It is merely intended to identify possible subjects to address when customizing Article 8.
Owners and contractors sometimes elect to completely delete and replace all of Section 8.3 with terms delay and schedule similar to:
§ 8.3.1 “Force Majeure” means unavoidable material or labor shortages which could not have reasonably been anticipated, strikes or labor disputes (that arise for reasons other than a dispute at or directly involving the Contractor or the Project), unusually severe adverse weather conditions not common to the area where the Project is located (as determined on the basis of the past ten (10) year weather records collected by the National Oceanic and Atmospheric Association), riots, war or insurrection, or other similar unforeseeable causes beyond Contractor’s control which were not caused by the Contractor, a Subcontractor or anyone for whom the Contractor is legally responsible (each a “Contractor Party”).
§ 8.3.2 “Force Majeure Delay” means a delay to the critical path of the Project that impacts Contractor’s ability to achieve Substantial Completion within the Contract Time, but only to the extent that such delay was caused by Force Majeure and was not caused by (i) any act, omission, negligence, fraud, willful misconduct or other misconduct of a Contractor Party; (ii) the bankruptcy, insolvency or other financial problem of any Contractor Party; (iii) the failure of any Contractor Party to perform the Work in accordance with the terms of the Contract Documents or its contract for the Work; or (iv) Contractor’s breach of this Agreement. If a delay is caused by unusually severe weather conditions, such claim shall be documented by data substantiating that weather conditions were abnormal for the period of time in the area where the Project is located, could not have been reasonably anticipated by the Contractor and had an adverse effect on the scheduled construction. Contractor shall use commercially reasonable and good faith efforts to avoid or mitigate the length and impact of any Force Majeure.
§ 8.3.3 “Compensable Delay” means a delay, other than a Force Majeure Delay, to the critical path of the Project that impacts Contractor’s ability to achieve Substantial Completion within the Contract Time, but only to the extent that such delay was due to a change for which Contractor is entitled to compensation under the Contract or was caused by the fault of Owner or an entity for which Owner is responsible, or by any Separate Contractor employed by Owner and was not caused by (i) any act, omission, negligence or willful misconduct of any Contractor Party; (ii) the bankruptcy, insolvency or other financial problem of any Contractor Party; (iii) the failure of any Contractor Party to perform in accordance with the terms of its contract for the Work; or (iv) Contractor’s breach of this Agreement.
§ 8.3.4 Within two (2) business days after becoming aware of Force Majeure or the possibility thereof, or within seven (7) business days after any event that may give rise to a Compensable Delay, Contractor shall notify Owner in writing, stating in such notice the basis for the claim of an existing or potential Force Majeure Delay or Compensable Delay, as applicable. Contractor shall advise Owner of the estimated length of the expected delay as soon as practicable after the information necessary to estimate the delay is available (which notice shall include the basis for such estimate and identify its impact on the critical path). As Contractor obtains additional information to calculate the actual delay, Contractor shall continue to update Owner, providing it with the basis used in calculating such update. As Contractor obtains information to substantiate the actual delay, Contractor shall so notify Owner, providing the information it has utilized in calculating such delay.
§ 8.3.5 Adjustment to Contract Sum and Contract Time.
- In the event of a Force Majeure Delay for which Contractor has provided timely notice under Section 8.3.4 above, and subject to Section 8.3.6 below, Owner shall, in its sole discretion, either (A) extend the Contract Time by Change Order to the extent of the impact of such delay on the critical path or (B) direct Contractor to accelerate the Work, in which case the Contract Sum shall be increased by the additional Cost of the Work due solely to such acceleration, plus Contractor’s Fee on such costs. Contractor agrees to accept the foregoing as its sole remedy in the event of a Force Majeure Delay.
- In the event of a Compensable Delay for which Contractor has provided timely notice under Section 8.3.4 above, and subject to Sections 8.3.6 below, Owner shall, in its sole discretion, either (A) extend the Contract Time by Change Order to the extent of the impact of such delay on the critical path or (B) direct Contractor to accelerate the Work, in which case the Contract Sum shall be increased by the additional Cost of the Work due solely to such acceleration, plus Contractor’s Fee on such costs. In addition, the Contract Sum shall be adjusted by the actual, reasonable and unavoidable costs that Contractor would not have incurred but for the Compensable Delay, except to the extent that such costs are included in an adjustment under Section 188.8.131.52(B) above. Contractor agrees to accept the foregoing as its sole remedy in the event of a Compensable Delay.
§ 8.3.6 Notwithstanding anything to the contrary herein:
- The Contractor shall use commercially reasonable and good faith efforts to avoid or mitigate the effect of any delay described in Section 8.3 as a condition precedent to a claim for an adjustment of the Contract Sum or Contract Time;
- Contractor shall not be entitled to an increase in the Contract Sum to the extent that a Compensable Delay or a Force Majeure Delay is concurrent with a delay caused by any Contractor Party; provided, however, in the event of such concurrent delay the Contractor shall be entitled to an extension of the Contract Time;
- In order to receive an increase of the Contract Sum or extension of the Contract Time, the Contractor must demonstrate that there was an actual delay in the performance of the Contractor’s Work that impacts the critical path and/or an actual increase in the Contractor’s costs resulting from the delay after accounting for concurrent delays;
- Under no circumstances shall Contractor be entitled to assert a claim for additional or extended home office overhead;
- Under no circumstances shall Contractor be entitled to assert a claim for an increase in the Contract Sum on the basis that Contractor would have completed the Work early but for an Owner-caused delay; and
- The Owner shall have the right to require the Contractor to substantiate all claims for adjustments to the Contract Sum or Contract Time in a form and level of detail that is reasonably acceptable to Owner.
Owners may wish to clarify that the above language is not intended as a limitation on the owner’s right to order, or the circumstances in which the owner may order, the contractor to accelerate performance of the work under the other terms of the agreement.
Owners may also wish to add that “Failure to provide timely notices as required by Section 8.3.4 shall be deemed a waiver of Contractor’s right to a change order with respect to such Force Majeure Delay or Compensable Delay.” Contractors may oppose this additional language, which might not be enforceable in binding dispute resolution proceedings. To address those concerns, that language may be qualified by adding “but only to the extent the Owner was prejudiced by Contractor’s failure to provide said notice” to the end of the sentence.
In fact, owners and contractors may wish to substantially change the template contract clauses set out above in order to match them to the “business deal” and to “right size” them for the project.
Important Caveat: One-Size Does Not Fit All!
THE FOREGOING IS NOT LEGAL ADVICE FOR YOU!!
And this is not just because I only give legal advice to clients of Baker Law Group LLC.
Since I compiled the A201-2017 Section 8.3 template revisions set out above, several years ago, I have never actually used the verbatim language set out above in an actual Owner-Contractor Agreement.
That is not because I do not believe in the logic behind the template revisions. It is because I have not encountered a project in the interim where it would have been in my client’s strategic best interests.
Every project is different. Every client is different. And every contract is different. You cannot merely take contract language “off-the-shelf” and use it in a one-size-fits-all manner.
For this reason, I strongly advise you to NOT attempt to modify Section 8.2 of the A201-2017 General Conditions, using the foregoing language, without first getting project-specific and contract-specific legal advice from your neighborhood design and construction attorney.
Nothing in this blog post is legal advice for you!
Conclusion: If You Like Complexity, You’ll Love Delay-Related Claims for Extra Time and Money
Albert Einstein once said, “If you can’t explain it simply, you don’t understand it well enough.”
I do not pretend to know precisely what Einstein had in mind when he offered this wisdom.
However, I am pretty sure that he was not encouraging people to pretend the complex is simple for their convenience. I am pretty sure he wanted people to embrace and study the complex, and fully ventilate the complexity, until they can make it their own. To use it for good and for their own purposes.
Now, I do not pretend to be an expert in the design and construction project cost and schedule issues that I wrote about above. What I do not know weighs tons more than what I do know.
However, I do have battle scars from prosecuting and defending delay-related claims for increases to the Contract Sum and extensions of the Contract Time. And I hope that this free-wheeling blog post will help someone, somewhere, gain a little more perspective on this complex subject from my experience.
This publication is prepared for the general information of friends of Baker Law Group LLC in Illinois. It is not legal advice for you, or legal advice regarding any specific matter. Jeremy S. Baker is licensed to practice law only in Illinois. Under rules applicable to the professional conduct of attorneys in various jurisdictions, it may be considered attorney advertising material. Prior results do not guarantee a similar outcome.