Category Archives: Delay Damages

SPECIFICATION CHALLENGE; EXCUSABLE DELAY; TYPE I DIFFERING SITE CONDITION; SUPERIOR KNOWLEDGE

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An Armed Services Board of Contract Appeals dispute, Appeal of L.S. Black-Loeffel Civil Constructors JV, ASBCA No. 62402, 2023 WL 5827241 (ASBCA 2023), involved which party bore liability for delay—the federal government or the prime contractor–based on various legal theories.  Without detailing the factual details, a number of interesting legal issues were raised in this dispute including (1) a defective specification challenge, (2) excusable delay, (3) Type I differing site condition, and (4) superior knowledge.  These legal issues are discussed below.

1. Specification Challenge (Defective Specifications)

The contractor claimed that the government’s specifications were defective in regard to a thermal control plan. The government countered that the specifications were not design specifications but performance specifications. The specifications were performance based because they did not tell the contractor how to achieve the performance-based criteria.

[A] defective specification cause of action only applies to defective design specifications; it does not apply to allegedly defective performance specifications.

***

Performance specifications set forth an objective or standard to be achieved, and the successful bidder is expected to exercise his ingenuity in achieving that objective or standard of performance, selecting the means and assuming a corresponding responsibility for that selection. Design specifications, in contrast, describe in precise detail the materials to be employed and the manner in which the work is to be performed. The contractor has no discretion to deviate from the specifications, but is required to follow them as one would a road map.

The amount of discretion the specifications give to the contractor in execution of the contract is a question of contract interpretation, which is a matter of law for this Board to decide.

L.S. Black-Loeffel, supra (internal citations and quotations omitted).

2. Excusable Delay

The contractor claimed the government constantly rejected its thermal control plan without providing any reason other than it was incomplete and did not meet the specifications, and this caused an excusable delay to the project.

To establish entitlement to an extension based on excusable delay, a contractor must who that the delay resulted from unforeseeable causes beyond the control and without the fault or negligence of the Contractor, and the unforeseeable cause must delay the overall contract completion, i.e., it must affect the critical path of performance. Similarly, where both parties contribute to the delay, neither can recover damage, unless there is the proof of clear apportionment of the delay and the expensive attributable to each party.

L.S. Black-Loeffel, supra (internal citations and quotations omitted).

The Board found that the government reviewed the contractor’s thermal control plan within the timeframe in the contract. “The fact that [the contractor] needed multiple submittals speaks more to the incomplete nature of its submittals than it does to any delays on the part of the government.” L.S. Black-Loeffel, supra (“[I]n every instance, the government provided a facially reasonable basis for rejecting the submittal and [the contractor] has not presented a single piece of evidence challenging those bases.”).

3. Type I Differing Site Condition

The contractor further contended that historical water tables incorporated into the contract “bound the government regarding the water levels [the contractor] would encounter and that water levels it encountered constituted a Type I differing site condition.” L.S. Black-Loeffel, supra.

In order to establish a Type I differing site condition, a contractor must prove all four of the following elements: (1) that a reasonable contractor would interpret the contract documents as making a representation of the site conditions; (2) the actual site conditions were not reasonably foreseeable such that the contractor reasonably relied on the representations; (3) the contractor did in fact rely on the contract representation; and (4) the conditions differed materially from those represented and the contractor suffered damages as a result.

L.S. Black-Loeffel, supra.

The first element is based on the contract; it’s a matter of contract interpretation. Id.   However, here, the contract stated that the actual water levels may vary from those indicated in the historical hydrographs.  Id. (“The contract, and the hydrographs themselves, say nothing about the precise conditions the contract would encounter during performance.”). Thus, the Board found that the historical hydrographs of water tables did not constitute a representation of site conditions.  Id.

The second element includes reasonable foreseeability. Weather, regardless of severity, is not considered a differing site condition under the Federal Acquisition Regulations differing site conditions clause.  Id. (“[T]he differing site conditions clause applies only to conditions which existed at the time of contracting; weather conditions which occur during the contract period are not covered by the differing site conditions clause.”).  Here, the Board found that high water tables was a weather condition where the contractor was offered additional time, but not additional compensation. Id. (“A contractor usually is only entitled to additional time for unusually severe weather, but the government has no legal responsibility for the additional costs incurred.”).

4. Superior Knowledge

The contractor also claimed the government had superior knowledge of the design and construction of a component of the project and did not share it. “The doctrine of superior knowledge is based upon the premise that, where the government has knowledge of vital information that will affect a contractor’s performance, the government is obligated to share that information.” L.S. Black-Loeffel, supra.

“In order to recover a claim based on superior knowledge, the contractor must show: (1) the contractor undertook performance without vital knowledge of a fact that affects performance costs or duration; (2) the government was aware the contractor had no knowledge of the vital information and no reason to obtain such information; (3) the contract specification supplied misled the contractor or did not put it on notice to inquire; and (4) the government failed to provide relevant information.” Id.  This argument is “grounded in the government’s warranty of its contract specifications.” Id.

However, because the specifications were performance-based, the Board found this did not apply – “[b]ecause no warranty attaches to the government’s performance specifications, it has no duty to disclose superior knowledge.” Id.  Moreover, the government had no way of knowing the contractor had no knowledge of the purported vital information and no reason to obtain it to support a superior knowledge argument.

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.

THE CREDIBILITY OF YOUR EXPERT (INCLUDING YOUR DELAY EXPERT) MATTERS IN CONSTRUCTION DISPUTES

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Here is a quote from a judge in an order after the bench trial of a complex construction dispute between a prime contractor and subcontractor on a federal project:

The evidence received in this case demonstrates the dynamic nature of complicated construction projects. At every step, the details matter, and coordination and cooperation among the companies tasked with performing the job is essential. Thankfully, as even this case shows, most disagreements that arise as projects evolve are handled during construction, far away from a courthouse, by the professionals who know best how to achieve the ultimate goal of a completed project.

U.S. f/u/b/o McKenney’s, Inc. v. Leebcor Services, LLC, 2022 WL 3549980, *1 (E.D. Va. 2022).

This is a true statement.  A statement that parties should remember as they navigate the nuances of a complicated construction project and dispute.

The facts of the case, however, would hardly be construed as a win for either party. Something else for parties to consider as they navigate the nuances of a complicated construction project and dispute.

While there were many components in dispute, one component is worthy of discussion.  That is competing delay claims between the subcontractor and prime contractor.  The prime contractor claimed the subcontractor delayed the critical path.  The subcontractor claimed the prime contractor delayed the critical path.  Both parties had experts supporting their conflicting delay theories.  The question became which expert is more persuasive? Stated differently, which expert is the most credible? Perhaps neither as neither party recovered delay damages against the other.

The subcontractor’s delay expert did not appear to assign much blame to the subcontractor.  The court did not find this to be credible because the evidence demonstrated the subcontractor’s “own shortcomings consistently delayed its work and, in turn, Project completion.”  Leebcor Services, supra, at *25.  The court understood that the subcontractor needed to prove that but for the prime contractor, the subcontractor would not have completed its work late. Yet, evidence demonstrated there was deficient and untimely work performed by the subcontractor. “Because [subcontractor] failed to disentangle its evidence of alleged [prime contractor]-caused delay from delay caused by its own shortcomings, it failed to demonstrate that [prime contractor] was required under the Subcontract to adjust its fixed-price to account for [prime contractor]-caused delay.”  Leebcor Services, supra, at *26.

The court found the prime contractor’s delay expert, while maybe more credible in certain respects, was not more convincing.  For instance, during a period of time, the court found that while the subcontractor may have been behind schedule, “[prime contractor] has failed to demonstrate by a preponderance of evidence that delays to the Project arising during this period are attributable to [subcontractor’s] failure to timely complete [the scheduled activity].  This is because the court concludes that other activities outside of [subcontractor’s] scope of work were delaying the completion of successor activities.”  Leebcor Services, supra, at *28.  In another instance, the court found that “concurrent issues within [prime contractor’s] control also delayed them, and no evidence was offered that would permit the court to disentangle [subcontractor’s] deficiencies from those attributable to [prime contractor].”  Id. at *29.

Remember, many construction disputes require expert witnesses including delay experts.  The expert needs to carry the day on an issue.  To do this, the expert needs to be credible and persuasive.  This case demonstrates why this should not be overstated and why, even with experts, a trier of fact may still find that neither carry the day.

 

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.

 

 

IS THE EVENT YOU ARE CLAIMING AS UNFORESEEABLE DELAY REALLY UNFORESEEABLE?

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Is the item or event you are claiming as an unforeseeable, excusable delay really unforeseeable?  This is not a trick question.

Just because your construction contract identifies items or events that constitute unforeseeable, excusable delay does not mean those items can be used as a blanket excuse or crutch for the contractor.  That would be unfair.

For instance, it is not uncommon for a construction contract to list as unforeseeable, excusable delay the following events or items: “(i) acts of God or of the public enemy, (ii) act of the Government in either its sovereign or contractual capacity, (iii) acts of another Contractor in the performance of a contract with the Government, (iv) fires, (v) floods, (vi) epidemics, (vii) quarantine restrictions, (viii) strikes, (ix) freight embargoes, (x) unusually severe weather, or (xi) delays of subcontractors or suppliers at any tier arising from unforeseeable causes beyond the control and without the fault or negligence of both the Contractor and the subcontractors or suppliers.” See, e.g., F.A.R. 52.249-10(b)(1).  While the itemization of excusable delay may be worded differently, the point is there may be a listing as to what items or events constitute excusable delay.  An excusable delay would justify additional time and, potentially, compensation to the contractor.

The Civilian Board of Contract Appeals explained that a listing of items or events leading to unforeseeable, excusable delay is NOT intended to give the contractor free rein or a get-of-jail free card if the contractor encounters such delaying item or event:

Nevertheless, the mere fact that a delay is caused by a type of activity listed in the contract as generally excusable does not give the contractor carte blanche to rely upon such excuses. “The purpose of the proviso,” which is “to protect the contractor against the unexpected, and its grammatical sense both militate against holding that the listed events are always to be regarded as unforeseeable, no matter what the attendant circumstances are.” As the Supreme Court has explained, “[a] quarantine, or freight embargo, may have been in effect for many years as a permanent policy of the controlling government” and, if so, may not meet the definition of a cause “unforeseeable” at the time of contract award, even if quarantines and freight embargoes are listed in the contract as examples of possible excusable causes of delay.

Further, even if an unforeseeable cause of delay occurs, the contractor cannot sit back and fail to take reasonable steps in response to it — once such an unforeseeable event occurs, the contractor affected by it has an obligation to attempt to mitigate the resulting damage to the extent that it can. If the contractor fails to do so, it “may not recover those damages which could have been avoided by reasonable precautionary action on its part.”

Yates-Desbuild Joint Venture v. Department of State, CBCA 3350, 2017 WL 4296219 (CBCA 2017) (internal citations omitted).

Now, think about your construction contract.  It may list similar items or events constituting delay.  Perhaps it expands on this list and identifies COVID, the Russia-Ukraine war, or supply chain impacts.  Similar to the reasoning above, “the mere fact that a delay is caused by a type of activity listed in the contract as generally excusable does not give the contractor carte blanche to rely upon such excuses.”  Yates-Desbuild Joint Venture, supra.  We know of the existence of COVID, the Russia-Ukraine war, and current supply chain impacts such that they are not unforeseeable.  And, encountering such an item or event cannot be used to compensate for other delays as the contractor “cannot sit back and fail to take reasonable steps in response to it.”  Yates-Desbuild Joint Venture, supra. The contractor still must mitigate the item or event it claims is causing excusable delay.

This serves as an example as to why you want clarity in your construction contract.  If you are identifying an item or event as unforeseeable, make sure it truly is or specify the context in which the item or event constitutes excusable delay.

 

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.

 

PRESENTING A “TOTAL TIME” DELAY CLAIM IS NOT SUFFICIENT

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When presenting a delay-type of claim on a construction project, a claimant MUST be in a position to properly PROVE the claim.  Trying to present a delay claim loosey-goosey is not a recipe for success.  In fact, it can be a recipe for an easy loss. This is not what you want.  To combat this, make sure you engage a delay expert that understands delay methodologies and how to calculate delay and do NOT present a total time claim. Presenting a delay claim using a total time approach, discussed below, makes it too easy to attack the flaws and credibility of the approach.  Per the discussion of the case below, a total time claim with a contractor that used its project manager, versus a delay expert, to support its claim turned the contractor’s claim into a loss.

In French Construction, LLC v. Department of Veteran Affairs, 2022 WL 3134507, CBCA 6490 (CBCA 2022), a contractor submitted a delay claim to the government for almost $400,000. The contractor was hired to construct a two-story corridor to connect hospital buildings.  The contractor was required to be complete within 365 days. It was not.  The contractor was seeking 419 days of delay from the government. The contractor’s “delay expert” was its project manager who compared the contractor’s as-planned schedule to an as-built schedule he prepared for the claim.

“To show how the critical path of contract performance evolved over the life of the contract and how excusable delays impacted that path, a contractor, at a minimum, needs a reasonable ‘as planned’ schedule and an ‘as built’ schedule, which it can incorporate into an analysis to show ‘the interdependence of any one or more of the work items with any other work items’ as the project progressed.” French Construction, supra (quotation and citation omitted).

Unfortunately, because the project manager was not a true delay expert, there were material flaws in his methodology from a critical path causation standpoint and a calculation of delay standpoint.  Basically, which is a big no-no, the project manager did a total time claim by simply taking the delta between as-planned and actual completion dates and focusing on durations while skipping the causation.

Under the ‘total time theory,” the contractor simply takes the original and extended completion dates, computes therefrom the intervening time or overrun, points to a host of individual delay incidents for which defendant was allegedly responsible and which ‘contributed’ to the overall extended time, and then leaps to the conclusion that the entire overrun time was attributable to defendant. The [total time] theory of proving delay is insufficient to meet the contractor’s burden to prove that government-caused delay actually delayed the overall completion of the project. [The contractor’s project manager] testified about the drawing delays and other problems that delayed demolition of the building without providing a sufficient showing that all the days of delay were attributable to this cause….

The remainder of [the contractor’s] delay claim suffers from the same problem. [The project manager] simply subcontracted the planned duration from the actual duration and identified that as the period of delay. [The project manager], in his report, then generally describes challenges or issues that [the contractor] faced during periods…without any specifics, to those issues.  [The project manager’s] opinions regarding the causes of delay amount to ‘broad generalities and inferences” that are insufficient to carry [the contractor’s] burden to prove compensable delay.

French Construction, supra (internal quotations and 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.

 

A RETROSPECTIVE AS-BUILT SCHEDULE ANALYSIS CAN BE USED TO SUPPORT DELAY

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Delay claims are part of construction.   There should be no surprise why.  Time is money.  A delay claim should be accompanied by expert opinions that bolster evidence that gets introduced.  The party against whom the delay claim is made will also have an expert – a rebuttal expert.  Not surprisingly, each of the experts will rely on a different critical path as to relates to the same project.   The party claiming delay will rely on a critical path that shows the actions of the other party impacted their critical path and proximately caused the delay.  This will be refuted by the opposing expert that will challenge the critical path and the actions claimed had no impact on the critical path (i.e., did not proximately cause the delay). Quintessential finger pointing!

This was the situation in CTA I, LLC v. Department of Veteran Affairs, CBCA 5826, 2022 WL 884710 (CBCA 2022), where the government terminated the contractor for convenience and the contractor claimed equitable adjustments for, among other things, delay.   The contractor’s expert relied on an as-built critical path analysis by “retrospectively creating updates to insert between the contemporaneous updates.”  Id., supra, n.3.  The government’s expert did not do a retrospective as-built analysis and relied on only contemporaneous schedule updates.  Id.

The government’s expert testified he was not a fan of a retrospective (after-the-fact) as-built analysis because this analysis can lead to manipulation.  He testified that he prefers to rely on contemporaneous schedule updates versus an as-built analysis where activities are added.   The contractor’s expert countered by saying the government’s expert wants to ignore as-built facts which would warrant adjustments to contemporaneous project schedules to account for what actually occurred in the field.

Who is right?  Is a retrospective (after-the-fact) as built analysis credible?   YES, it is.  But, in an answering this question, let’s bullet point some key aspects as articulated by the Civilian Board of Contract Appeals, which need to be underscored for importance:

The contractor “has burden of proving the extent of the delay, that the delay was proximately caused by government [owner] action, and the delay harmed” the contractor.  CTA I, supra (citation omitted).

“Only delay on a project’s critical path results in overall delay.”  Id.

 “As as-built critical path that reconstructs schedule updates is an acceptable methodology” “[A] rigorous ‘as-built’ approach- reviewing contemporaneous evidence in hindsight to trace the activities on the actual, longest path to completion-has been endorsed by government contracts tribunals.”  Id.

“Because we must determine why a project lasted as long as it did, we [the Board] want to know the path to the latest work – including the critical work immediately preceding that work, and just before that, and so on.” Id.

“We reject [the government’s] accusation that retrospectively adjusting as-built schedules based on project documentation or other evidence necessarily turns the schedules into ‘fiction.’ There is, to be sure, a heavy presumption that regularly updated, contemporaneous schedules are the best evidence of project progress.”  Id.

“[F]orensic schedule analysis is ‘both a science and an art’ and ‘not a magic wand’ but a set of techniques requiring ‘the application of an expert’s well-considered judgment in evaluating the logic of underlying the various pieces of information that support the analysis.’”  Id.

Even if relying on an as-built analysis, there needs to be persuasive contemporaneous project documents – “[e]xpert opinions offered on certain matters that…are not supported by the record tend[] to cast a shadow on the value of other opinions concerning issues where the underlying factual matters were less clear.” Id. (citation omitted) (discussing aspects of contractor’s experts opinion that relied on an unknown extent of hindsight with interviews of the contractor’s project team which the government and the Board were not privy, and where there was not persuasive contemporaneous evidence).

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.

 

LOST PRODUCTIVITY OR INEFFICIENCY CLAIM CAN BE CHALLENGING TO PROVE

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One of the most challenging claims to prove is a lost productivity or inefficiency claim.  There is an alluring appeal to these claims because there are oftentimes intriguing facts and high damages.  But the allure of the presentation of the claim does not compensate for the actual burden of proof in proving the lost productivity or inefficiency claim, which will require an expert.  And they really are challenging to prove.

Don’t take it from me.  A recent Federal Claims Court opinion, Nova Group/Tutor-Saliba v. U.S., 2022 WL 815826, (Fed.Cl. 2022), that I also discussed in the preceding article, exemplifies this point.

To determine lost productivity or inefficiency, the claimant’s expert tried three different methodologies.

First, the expert looked at industry standard lost productivity factors such as those promulgated by the Mechanical Contractor’s Association.  However, the claimant was not a mechanical contractor and there is a bunch of subjectivity involved when using these factors. The expert decided not to use such industry standard factors correctly noting they provide value when you are looking at a potential impact prospectively, but once you incur actual damages and have real data, it is not an accurate measure.

Second, the expert tried the preferred methodology – the measured mile approach. The expert testified: “[T]he measured mile approach is an approach where you look at an unimpacted piece of the work to find out what it actually took to do that piece, and you compare it to the impacted production to see if you had a production loss, and you can measure that loss.” Nova Group, supra, at *50.  The expert, however, elected not to use this approach due to the limited data he had to make this an accurate methodology.

Lastly, the expert tried and implemented the modified total cost methodology finding it to be the most appropriate methodology to capture the claimant’s lost productivity damages in the context of the claim.

A total cost method determines damages by taking “the difference between the actual cost of the contract and the contractor’s bid. This method is disfavored by courts “because of concerns about bidding inaccuracies, which can reduce the contractor’s estimated costs, and performance inefficiencies, which can inflate its actual expenditures.” “The modified total cost methodology addresses some of the objections to the total cost method” by adjusting for possible inaccuracies. 

The modified total cost method requires the contractor, typically through an expert, to prove: (1) the impracticability of proving actual losses directly; (2) the reasonableness of its bid; (3) the reasonableness of its actual costs; and (4) its lack of responsibility for the added costs.

Nova Group, supra, at *51 (citations omitted).

The government (opposing the lost productivity claim) countered that the claimant failed to prove these factors. In particular, the government argued that the claimant did not prove the reasonable of its costs or its lack of responsibility for its added costs. In doing so, the government relied on testimony of its own expert that addressed factors that went into the claimant’s cost overrun.   The Federal Claims Court agreed that the claimant failed to prove the required factors to utilize a modified total cost approach: “Plaintiff has not met its burden of providing modified total cost damages, in particular, Plaintiff’s lack of responsibility for lost productivity costs….”  Nova Group, supra, at *52.

When presenting a lost productivity or inefficiency claim, it is imperative that an expert is utilized.  While the claimant’s expert did the right thing by analyzing different lost productivity methodologies, by failing to fully and completely address all of the factors to sustain the modified total cost approach, the lost productivity claim failed because the burden of proof was not met.

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.

 

APPLICATION OF TWO CONSTRUCTION CONTRACT PROVISIONS: NO-DAMAGES-FOR-DELAY AND LIQUIDATED DAMAGES

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A recent Florida opinion between a prime contractor and a Florida public body touches upon two important issues:  (1) the application of a no-damage-for-delay provision; and (2) the application of a liquidated damages provision.   Both provisions find there way into many construction contracts.  Unfortunately, the opinion is sparse on facts.  Nevertheless, the application of these provisions is worthy of consideration.

In this opinion, Sarasota County v. Southern Underground Industries, Inc., 2022 WL 162977 (Fla. 2d DCA 2022), a county hired a contractor to install sanitary and water piping underneath a waterway.  During construction, a nearby homeowner complained that vibration from the drilling caused damage to his home.  As a result, the county stopped the contractor’s work to address a potential safety issue, as it was contractually entitled to do.  The contractor hired a structural engineer to inspect the house and the engineer issued a report determining that any alleged damage was cosmetic and that there was sufficient monitoring of the vibrations to prevent future damage.  The contractor also had an insurance policy to cover any homeowner claim for damage.  However, upon receipt of the engineer’s report, the county did not lift its stop work order.  Rather, the stop work order remained in place for an additional 71 days.

NO-DAMAGES-FOR-DELAY

The contractor sued the county to recover its costs during the additional 71 days the project was stopped.  The county relied on its no-damages-for-delay provision in its contract.  The trial court, as affirmed by the appellate court, found that the county’s work stoppage for an additional 71 days amounted to active interference and bad faith.

“Although ‘no damages for delay’ clauses are recognized in law, they will not be enforced in the face of governmental ‘fraud, bad faith, or active interference’ with the performance under the contract.”  Sarasota County, 2022 WL at *2 (citation omitted).   There was no reason to keep the stop work order in place after it was found it was safe to resume the construction activities.

LIQUIDATED DAMAGES

However, the trial court did assess liquidated damages against the contractor because the matter with the complaining homeowner had not been resolved by the contractual date for final acceptance.

For a liquidated damages clause to be enforceable, “the damages consequent upon a breach must not be readily ascertainable,” and “the sum stipulated to be forfeited must not be so grossly disproportionate to any damages that might reasonably be expected to follow from a breach.” “[L]iquidated damages clauses can exist only when they provide for ’damages’ (something to be given by one party who breaches the contract to the other party to compensate the other party for his loss which is a consequence of that breach).”

Sarasota County, 2022 WL at *2 (citations omitted).

The appellate court reversed the trial court’s assessment of liquidated damages because the county did not sustain any loss due to any delay to final acceptance.  The contractor had completed all of its work by the contractual date except for resolving the complaining homeowner’s claim.  “Thus, because the County had the full use for the completed construction project for over two years before final acceptance, ‘the sum stipulated to be forfeited,” was “grossly disproportionate to any damages that might [have been] expected to follow from a breach.’”  Sarasota County, 2022 WL at *3 (citation omitted).

COMMENTS

The limited facts do not do this opinion any justice.  However, it’s important to appreciate that a no-damages-for-delay provision is not the be-all-and-end-all of a delay claim.  It just isn’t!  As this court found, the work stoppage beyond the point it should have been stopped was active interference and bad faith.

As for the liquidated damages argument, that’s a head scratcher unless the court’s point is that once the government got beneficial use of the project, any delay in its final acceptance of the contract constituted a penalty even though sophisticated parties agreed to this provision.  (Not how the court worded it though!). Also, this opinion could have the affect of opening up Pandora’s box by allowing a party to take discovery on financial information or otherwise relative to actual damages when, frankly, this defeats the purpose of the liquidated damages provision.

Liquidated damages provisions on private jobs are negotiated by sophisticated parties.  On public jobs, you know what the liquidated damages are and how the provision is generally worded and can factor that into your pricing, no different than any other risk included in the contract.

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.

 

 

CONSIDERATIONS WHEN DEALING WITH AN ASSESSMENT OF LIQUIDATED DAMAGES

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In a recent post I talked about a liquidated damages provision in construction contracts.  I participated in a panel on this very topic devoted to discussing the application and enforceability of liquidated damages provisions.   I was involved in discussing the application of liquidated damages provisions in terminated contracts, in addition to the flow-down of liquidated damages with downstream trades.   A portion of my powerpoint presentation is below.

It’s important to remember that when dealing with the assessment of liquidated damages, circumstances are fact specific and strategic decisions are fact specific.  These considerations are important based on the extent of the liquidated damages assessment and your own claims relative to delay or the manner in which the liquidated damages were assessed.

 

 

Questions to consider when dealing with liquidated damages:

  • What does the contract say regarding liquidated damages?
  • What is the rate of liquidated damages and total assessment amount?
  • Is there a legitimate argument based on the jurisdiction to attack the assessment of liquidated damages as an unenforceable penalty (and, if so, can actual damages be asserted that may be proven to be more than the assessment amount)?
  • When was notice given regarding the assessment of liquidated damages?
  • What are the factual circumstances / factual context in which liquidated damages are being assessed?
  • Is there excusable delay that needs to be considered?
  • Has an expert been engaged to support excusable or concurrent delay — rebut liquidated damages–or, should one be engaged as soon as possible?
  • Was the contract terminated and, if so, can the argument be made that the termination was not proper (substantively and/or procedurally per the contract)?
  • Are liquidated damages still accruing and, if so, is there an argument as to the unreasonableness of the continued accrual?
  • Are there other factual considerations to support that (i) the liquidated damages are being assessed as a penalty, or (ii) should be reduced or offset?

[gview file=”https://floridaconstru.wpengine.com/wp-content/uploads/2022/01/LD-PPT11.pptx”]

 

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!” IN CONSTRUCTION AND THIS IS WHY THERE IS A LIQUIDATED DAMAGES PROVISION

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In construction, the adage “Time is Money!” rings true for all parties involved on a project.  This includes an owner of a project that wants a project completed on time, i.e., by a substantial completion date.   While substantial completion is often defined as when an owner can use a project for its intended purpose, this intended purpose typically equates to beneficial occupancy (in new construction) and other factors as identified in the contract.

The best mechanism for an owner to reinforce time and the substantial completion date is through a liquidated damages provision (also known as an LD provision) that includes a daily monetary rate for each day of delay to the substantial completion date.

A liquidated damages provision is not designed, and should NEVER be designed, to serve as a penalty because then it would be unenforceable.  Instead, it should be designed to reasonably compensate an owner for delay to the substantial completion date that cannot be ascertained with any reasonable degree of certainty at the time the contract is being negotiated and executed.  (Liquidated damages are MUCH easier to prove than actual damages an owner may incur down the road.)  As an owner, you don’t really want to assess liquidated damages because that means the project is not substantially completed on time.  And, in reality, a timely completed and performing project should always be better and more profitable than a late and underperforming project.   However, without the liquidated damages provision, there isn’t a great way to hold a contractor’s feet to the fire with respect to the substantial completion date.

There are numerous ways to equitably craft a liquidated damages provision if it is a negotiated provision (like in private projects).  It can be based on project phases or milestones. It can be based on one substantial completion date.  It can include a grace period.  It can include gradual increases in the daily rate based on certain time periods associated with delay.  It can be capped at a certain amount to cap the exposure.  The bottom line is that it is a risk that gets factored into the contract and substantial completion date to emphasize timely completion.

Many construction contracts will contain a mutual waiver of consequential damages provision.  This provision may include specific examples of consequential damages.  In other words, regardless of whether such examples truly constitute consequential damages, these damages examples are contractually mutually waived by the parties.  Two examples commonly include loss of use damages and increased  or additional financing damages.  These two examples are categories that do go hand-in-hand with an untimely project.  For instance, if a project is late, the owner cannot use the project by the substantial completion date and will have increased and/or additional financing costs.  Without a liquidated damages provision, and with a mutual waiver of consequential damages provision, an owner may be sh*t out of luck with recovering delay damages for a delayed project because primary actual delay damages they could prove have been waived.  (Thus, there is nothing holding the contractor’s feet to the fire regarding the substantial completion date.)  Hence, if you are going to negotiate having no liquidated damages provision, be mindful of the mutual waiver of consequential damages provision and what you may be conceding.

This is important: simply because there is a liquidated damages provision does not mean a contractor should unilaterally be exposed to liquidated damages for a delayed project.  There may be legitimate excusable delay that needs to get factored in including excusable compensable delay meaning the contractor is owed its own delay damages.  There could be concurrent delay that needs to get factored in.  While an owner may not accept a contractor’s request for additional time or claimed excusable or concurrent delay, this does not mean a contractor is just going to cave when it comes to an owner’s assessment and withholding of sums associated with liquidated damages.  Most contractors are not going to unless it is irrefutable that the delay to substantial completion was caused by them (more specifically, a trade).

A contractor agreeing to a liquidated damages provision needs to make sure that it flows the risk downstream to trades that may cause the delay.  A contractor still needs to prove the trade caused the delay, but the contractor must flow-down that risk.  If a trade is unwilling to assume that risk, that needs to be considered by the contractor.  In any event, the contractor cannot agree that the trade is not liable for any delay because the risk the contractor has assumed is not transferred to a trade that may cause that risk meaning there is nothing that holds that trade’s feet to the fire.

A liquidated damages provision is neither uncommon nor unreasonable.  It is a risk, oftentimes negotiated on private jobs but maybe not the case on public jobs, that is factored in at the onset of any project.  It is a risk that cannot be overlooked but is the risk designed to best maximize the emphasis on time is of the essence as to the substantial completion date.

 

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.

 

STANDARD FOR EVALUATING DELAY – DIRECTLY FROM AN ARMED SERVICES BOARD OF CONTRACT APPEAL’S OPINION

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Sometimes, it is much better to hear it from the horse’s mouth.  That is the case here.  The Armed Services Board of Contract Appeal’s (ASBCA) opinion in Appeals of -GSC Construction, Inc., ASBCA No. 59402, 2020 WL 8148687 (ASBCA November 4, 2020) includes an informative discussion of a contractor’s burden when it encounters excusable delay and, of importance, the standard for evaluating delay.  It’s a long discussion but one that parties in construction need to know, appreciate, and understand.  EVERY WORD IN THIS DISCUSSION MATTERS.

Construction projects get delayed and with a delay comes money because time is money.  Many claims are predicated on delay.  These can be an owner assessing liquidated damages due to a delayed job or a contractor seeking its costs for delay.  Either way, the standard for evaluating delay and the burdens imposed on a party cannot be understated and, certainly, cannot be overlooked.  For this reason, here is the discussion on evaluating delay directly from the horse’s mouth in the Appeal of-GSC Construction, Inc.:

The critical path is the longest path in the schedule on which any delay or disruption would cause a day-for-day delay to the project itself; those activities must be performed as they are scheduled and timely in order for the project to finish on time. Wilner v. United States, 23 Cl. Ct. 241, 245 (1991). In Yates-Desbuild Joint Venture, CBCA No. 3350 et al., 17-1 BCA ¶ 36,870, our sister board compiled an excellent and very helpful synopsis of the standards for evaluating delay claims, which I adopt nearly verbatim among the discussion that follows.

To the extent that the government that delays a contractor’s work and increases its costs, the contractor may seek compensation for its damages. Yet, the mere fact that there is some delay to some aspect of planned contract work is not enough to establish that the contractor’s ultimate contract performance costs or time increased. In evaluating the effect of government-caused delays on the contractor’s ultimate performance time and cost, tribunals generally look to the critical path of contract performance, a method of delay analysis that the United States Court of Claims explained as follows:

Essentially, the critical path method is an efficient way of organizing and scheduling a complex project which consists of numerous interrelated separate small projects. Each subproject is identified and classified as to the duration and precedence of the work. (E.g., one could not carpet an area until the flooring is down and the flooring cannot be completed until the underlying electrical and telephone conduits are installed.) The data is then analyzed, usually by computer, to determine the most efficient schedule for the entire project. Many subprojects may be performed at any time within a given period without any effect on the completion of the entire project. However, some items of work are given no leeway and must be performed on schedule; otherwise, the entire project will be delayed.

Yates-Desbuild, 17-1 BCA ¶ 36870 at 179,684-85 (quoting Haney v. United States, 676 F.2d 584, 595 (Ct. Cl. 1982)).

Where the time frame for performance of an activity, set by the earliest possible start time and the latest possible finish time, establishes a time interval equal to the expected activity duration, the activity is termed ““critical,” and no discretion or flexibility exists in the scheduling of that activity. Items of work for which there is no timing leeway are on the critical path, and a delay, or acceleration, of work along the critical path will affect the entire project. Specifically, then, to prevail on its claims for the additional costs incurred because of the late completion of a fixed-price government construction contract, a contractor must show that the government’s actions affected activities on the critical path. Typically, if work on the critical path is delayed, then the eventual completion date of the project is delayed. Conversely, a government delay that affects only those activities not on the critical path does not delay the completion of the project. As a result, the determination of the critical path is crucial to the calculation of delay damages. Id. at 179,685.

To satisfy its burden, the contractor must establish what the critical path of the project actually was and then demonstrate how excusable delays, by affecting activities on the contract’s critical path, actually impacted the contractor’s ability to finish the contract on time. This is done through an analysis to show the interdependence of any one or more of the work items with any other work items as the project progressed. One established way to document delay is through the use of contemporaneous Critical Path Method (CPM) schedules and an analysis of the effects, if any, of government-caused events. In fact, in situations where the contractor utilized Primavera scheduling software to create schedules throughout the life of the project, it would be folly to utilize some other method of critical path analysis. Id.

Because the critical path of construction can change as a project progresses, activities that were not on the original critical path subsequently may be added, and, to preclude post hoc rationalization and speculation, it is important that the contemporaneous schedules that the contractor uses to show critical path delay are updated throughout contract performance to reflect changes as they happened. Accurate, informed assessments of the effect of delays upon critical path activities are possible only if up-to-date CPM schedules are faithfully maintained throughout the course of construction. Id.

Nevertheless, the existence of contemporaneous schedules does not permit a tribunal to ignore, or fail to consider, logic errors in those schedules. A CPM schedule, even if maintained contemporaneously with events occurring during contract performance, is only as good as the logic and information upon which it is based. CPM is not a “magic wand,” and not every schedule presented will or should be automatically accepted merely because CPM technique is employed. To be a reliable basis for determining delay damages, a CPM schedule must reflect actual performance and must comport with the events actually occurring on the job. Tribunals may need to inquire into the accuracy and reliability of the data and logic underlying the CPM evaluation in appropriate circumstances and reject CPM analyses if the logic was not credible or was suspect. Id. at 179,685-86.

Even if the contractor shows delay by the government that affects the critical path, the contractor must also establish that it was not concurrently responsible for delays. Tribunals will deny recovery where the delays of the government and the contractor are concurrent and the contractor has not established its delay apart from that attributable to the government. Nevertheless, any contractor-caused delays must affect the critical path of contract performance to be considered “concurrent” — contractor delays that, absent the Government-caused delay, would have had no negative impact upon the ultimate contract completion date do not affect the government’s monetary liability. For the same reasons discussed above, because concurrent delays that do not affect the critical path of contract work do not delay project completion, an accurate critical path analysis is essential to determine whether concurrent delays have caused delay damages related to the delayed completion of a complex construction project. Id. at 179,686.

In establishing excusable delay, the contractor may point to causes outside the Government’s control. FAR 52.249-10(b)(1), Default, provides a non-exhaustive list of excusable delays that includes acts of God, acts of a host country government in its sovereign capacity, fires, floods, epidemics, strikes, and unusually severe weather. Obviously, a contractor has no control over whether it rains, whether there is a flash flood, or whether there are forest fires. Nevertheless, the mere fact that a delay is caused by a type of activity listed in the contract as generally excusable does not give the contractor carte blanche to rely upon such excuses. The purpose of the proviso, which is to protect the contractor against the unexpected, and its grammatical sense both militate against holding that the listed events are always to be regarded as unforeseeable, no matter what the attendant circumstances are. A quarantine, or freight embargo, may have been in effect for many years as a permanent policy of the controlling government and, if so, may not meet the definition of a cause “unforeseeable” at the time of contract award, even if quarantines and freight embargoes are listed in the contract as examples of possible excusable causes of delay. Id. at 179,686-87.

Further, even if an unforeseeable cause of delay occurs, the contractor cannot sit back and fail to take reasonable steps in response to it — once such an unforeseeable event occurs, the contractor affected by it has an obligation to attempt to mitigate the resulting damage to the extent that it can. If the contractor fails to do so, it may not recover those damages which could have been avoided by reasonable precautionary action on its part. Id. at 179,687.

To establish entitlement to an extension based on excusable delay, a contractor must show that the delay resulted from “unforeseeable causes beyond the control and without the fault or negligence of the Contractor,” and the unforeseeable cause must delay the overall contract completion; i.e., it must affect the critical path of performance. Sauer Inc. v. Danzig, 224 F.3d 1340, 1345 (Fed. Cir. 2000). Similarly, a contractor’s default is excused only to the extent that there were no additional delays for which the contractor was responsible (beyond those caused by the government) and that “there is in the proof a clear apportionment of the delay and the expense attributable to each party.” See Blinderman Constr. Co. v. United States, 695 F.2d 552, 559 (Fed. Cir. 1982) (quoting Coath & Goss, Inc., 101 Ct.Cl. 702, 714-15 (1944).

However, in order to prove that it is entitled to delay damages in the form of time or money, a contractor must prove that the government was responsible for specific delays, overall project completion was delayed as a result of the government-caused delays, and any government-caused delays were not concurrent with delays within the contractor’s control. L.C. Gaskins Constr. Co., ASBCA No. 58550 et al., 18-1 BCA ¶ 36,978 at 180,121-22. If an event that would constitute an excusable cause of delay in fact occurs, and if that event in fact delays the progress of the work as a whole, the contractor is entitled to an extension of time for so much of the ultimate delay in completion as was the result or consequence of that event, notwithstanding that the progress of the work may also have been slowed down or halted by a want of diligence, lack of planning, or some other inexcusable omission on the part of the contractor. Chas. I. Cunningham Co., IBCA No. 60, 57-2 BCA ¶ 1,541 at 5,843.

A contractor is entitled to time extensions for government-caused delays and excusable delays, even when they are concurrent with contractor-caused delay. When a contractor is seeking extensions of contract time, for changes and excusable delay, which will relieve it from the consequences of having failed to complete the work within the time allowed for performance, it has the burden of establishing by a preponderance of the evidence not only the existence of an excusable cause of delay but also the extent to which completion of the contract work as a whole was delayed thereby. The contractor must prove that the excusable event proximately caused a delay to the overall completion of the contract, i.e., that the delay affected activities on the critical path. And it must also establish the extent to which completion of the work was delayed—it is entitled to only so much time extension as the excusable cause actually delayed performance. R.P. Wallace, Inc. v. United States, 63 Fed. Cl. 402, 409-10 (2004).

Thornier issues are posed by concurrent or sequential delays—the first occurring where both parties are responsible for the same period of delay, the second, where one party and then the other cause different delays seriatim or intermittently. Concurrent delay is not fatal to a contractor’s claim for additional time due to excusable delay, but precludes the recovery of delay damages. If a period of delay can be attributed simultaneously to the actions of both the Government and the contractor, there are said to be concurrent delays, and the result is an excusable but not a compensable delay. A contractor generally cannot recover for concurrent delays for the simple reason that no causal link can be shown: A government act that delays part of the contract performance does not delay the general progress of the work when the prosecution of the work as a whole would have been delayed regardless of the government’s act. Id.

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.