THE CONSTRUCTION PROJECT IS LATE – ALLOCATION OF DELAY

images-1The construction project is late.  Very late.  The owner is upset and notifies the contractor that it is assessing liquidated damages.   The contractor, in turn, claims that the project is late because of excusable, compensable delays and, perhaps, excusable, noncompensable delays.  This is a common and unfortunate story between an owner and contractor on any late construction project.  Now the fun begins regarding the allocation of the delay!

 

Through previous articles, I discussed that in this scenario the burden really falls on the contractor to establish that the liquidated damages were improperly assessed against it and, thus, it is entitled to additional time and/or extended general conditions as a result of excusable delays.   Naturally, this requires the contractor to develop a critical path analysis (time impact analysis) allocating the impacts / delays (and the reasons for the impacts/ delays) to the project completion date. The reason the burden really falls on the contractor is because the owner’s burden is relatively easy – the project was not complete on time pursuant to the contract and any approved changed orders. 

 

In a recent opinion, East Coast Repair & Fabrication, LLC v. U.S., 2016 WL 4224961 (E.D.Va. 2016), the court contained a very detailed and sound discussion regarding this common story between an owner and contractor.   Although this is a case involving a ship repair company overhauling and repairing a Navy  (government) vessel, the court’s discussion would apply to any late construction project and the allocation of delay to a late project.   Please take the time to read the Court’s discussion below as it lays the framework for the allocation or apportionment of delay. 

 

In the context of litigating liquidated damages assessed by the government in a construction contract, the government first must meet its initial burden of showing that “the contract performance requirements were not substantially completed by the contract completion date and that the period for which the assessment was made was proper.” Once the government has met that burden, the burden then shifts to the contractor “to show that any delays were excusable and that it should be relieved of all or part of the assessment.

In order for the contractor to carry its burden it must “demonstrate that the excusable event caused a delay to the overall completion of the contract, i.e., that the delay affected activities on the critical path” because the contractor “is entitled to only so much time extension as the excusable cause actually delayed” completion of the contract.

***

Having considered the somewhat conflicting positions taken on this issue in prior federal cases, this Court finds that the better legal interpretation regarding the proper treatment of “sequential delays” (where one party causes a delay followed by a separate-in-time delay caused by the other), is that “apportionment” should be permitted when the evidence provides a reliable basis on which to determine which party is responsible for which delay. Stated differently, the fact that the Government was solely responsible for some delays in this case…does not preclude the Government as a matter of law from recovering some amount of liquidated damages as a result of subsequent, and conceptually distinct, delays deemed to be solely the fault of ECR/Técnico [Contractor and its subcontractor].

 

As to performance delays deemed to be “concurrent,” (both parties causing a delay at the same time), the established law reveals that ECR [Contractor] is permitted to seek an extension of the project completion date for such delay, as long as the delay caused by the Government would have disrupted the “critical path” in the absence of the delay caused by the contractor. However, while ECR may seek an extension of the performance period for a concurrent delay, ECR is precluded by law from obtaining a monetary award to compensate it for “delay damages” for such delays, with the appropriate relief being only the extension of the project completion date (which, in effect, results in a day-for-day reduction of the Government’s liquidated damages claim). 

East Coast Repair & Fabrication, supra, at *13-14 (internal quotations omitted).

 

 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

BURDEN OF PROOF CHALLENGING ASSESSMENT OF LIQUIDATED DAMAGES

UnknownA contractor is working on a project that includes a contractual liquidated damages provision.  The liquidated damages provision says the contractor is liable for $2,000 per day in liquidated damages if the contractor does not achieve substantial completion by January 1, 2016, a date extended through agreed-upon change orders.  Substantial completion has not been achieved by this date and is not projected to be achieved until May 1, 2016.  The owner already notified the contractor that it plans to assess liquidated damages and such assessment will be deducted from the contractor’s payment (retainage payment application). 

 

When it comes to liquidated damages, who has the burden of proof: the owner or the contractor? 

 

The owner’s burden is actually quite simple. It is merely a burden of persuasion.  All the owner has to do is establish that the project was not substantially completed in accordance with the contract and any approved extensions of time.  Typically, an easy burden of persuasion.

 

This shifts the burden of proof to the contractor challenging the assessment of liquidated damages to establish that the owner was the cause of delays to the substantial completion date (or other contractual date triggering the enforcement of liquidated damages) (e.g., design errors, change orders, change order directives, permit delays, differing site conditions, etc.).  See, e.g., PCL Const. Services, Inc. v. U.S., 53 Fed.Cl. 479 (2002) (government has initial burden of persuasion showing contract was not completed on time shifting burden of proof to contractor to establish excusable delays); accord K-Con Bldg. Systems, Inc. v. U.S., 97 Fed.Cl. 41 (2011) (contractor failed to establish owner caused delays precluding the owner from assessing liquidated damages); Carrothers Const. Co. v. City of S. Hutchinson, 755, 207 P.3d 231, 241 (Kan. 2009) (“By placing the burden of proof on the party challenging a liquidated damages clause, we promote a public policy favoring settlement and avoidance of litigation, and allowing parties to make, and live by, their own contracts.”); TAL Fin. Corp. v. CSC Consulting, Inc., 844 N.E.2d 1085, 1092 (Mass. 2006) (“The burden of proof regarding the enforceability of a liquidated damages clause, therefore, should rest squarely on the party seeking to set it aside.”).  

 

When you sign a construction contract with a liquidated damages provision, understand the application of this provision if the project is not completed in accordance with the provision.  Make sure to ask for and document extensions of time and excusable delays.  In other words, preserve your rights under any notice provisions in the contract asking for extensions of time or notifying the owner of scheduling impacts.  Also, consult with a scheduling consultant, as may be necessary, to analyze the critical path of the schedule to isolate excusable delay and any concurrent delay establishing that although the project was late there were events or issues that would reduce or fully negate the number of days the owner is assessing liquidated damages for.

 

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.

 

 

“NO DAMAGE FOR DELAY” PROVISIONS AND THE EXCEPTIONS

UnknownContractors and subcontractors should be familiar with “no damage for delay” provisions.  These are contractual provisions that limit the contractor’s remedies for a delay to an extension of time ONLY, and disallow the contractor from being entitled to extended general conditions (overhead) for an otherwise excusable, compensable delay.   

 

There are numerous variations of the “no damage for delay” provision; however they usually contain language that provides as follows:

 

“The contractor’s sole and exclusive remedy for a delay, interference, or hindrance with its Work shall be an extension of time and contractor shall not be entitled to any damages for a delay, interference, or hindrance with its Work.”

 

 or

 

“The contractor shall not be entitled to any compensation whatsoever for any delay, interference, hindrance, acceleration, or inefficiency with its Work and its sole and exclusive remedy for any delay, interference, acceleration, or inefficiency with its Work shall be an extension of time.”

 

In Florida, “no damage for delay” provisions are enforceable on private and public projects.  However, there are EXCEPTIONS that would prevent the provision’s harsh application and entitle a contractor to its extended general conditions for an excusable, compensable delay.  These exceptions are fraud, willful concealment of foreseeable circumstances, and active interferenceSee Triple R Paving, Inc. v. Broward County, 774 So.2d 50 (Fla. 4th DCA 2000).  In other words, if the hiring party (owner) does not willfully or knowingly delay construction, then the application of the “no damage for delay” provision will preclude the hired party (contractor) from recovering its extended general conditions associated with the delay.  See id.  On the other hand, if the hiring party does willfully or knowingly delay construction, then the hired party has an argument around the “no damage for delay” provision.

 

Even with a “no damage for delay” provision in the contract, it is imperative for the hired party (contractor) to properly and timely request additional time and money in accordance with the contract.  There are typically provisions that require the hired party (contractor) to notify the hiring party (owner) of delaying events or claims and to request time and money associated with the event or claim.  If a contractor fails to timely preserve its rights under the contract to seek additional time or money, it may preclude itself from recovering extended general conditions for a delay that would otherwise serve as an exception to the “no damage for delay” provision.  See Marriot Corp. v. Dasta Const. Co., 26 F.3d 1057 (11th Cir. 1994) (contractor’s failure to request time pursuant to the contract prevented it from recovering delay damages associated with an owner’s active interference).

 

On federal construction projects, “no damage for delay” provisions are perhaps less common based on Federal Acquisition Regulations (F.A.R.) that would otherwise entitle the contractor to recover delay-related damages if it properly and timely preserves its rights.  These “no damage for delay” provisions are more frequently found in subcontracts between the prime contractor and its subcontractors.  There is authority that would hold an unambiguous “no damage for delay” enforceable on federal construction projects:

 

Nevertheless, given their potentially harsh effect, no damages for delay provisions should be strictly construed, but generally will be enforced, absent delay (1) not contemplated by the parties under the provision, (2) lasting an unreasonable period and thereby amounted to an abandonment of the contract, (3) caused by fraud or bad faith, or (4) amounting to active interference or gross negligence.

Appeal of-The Clark Construction Group, Inc., GAOCAB No. 2003-1, 2004 WL 5462234 (November 23, 2004); accord Grunley Construction Co. v. Architect of the Capitol, GAOCAB No. 2009-1, 2010 WL 2561431 (June 16, 2010).

 

In drafting a “no damage for delay” provision, I always like to include language that specifically states that the application of the “no damage for delay” provision is not conditioned on the hired party (contractor) being granted additional time to substantially complete or finally complete the project.  I also like to include language that the hired party (contractor) understands this “no damage for delay” provision and has factored this provision into the contract amount.  It is important that this provision clearly reflects the intent because the hiring party will want to rely on this provision in the event there is a delaying event and it is a provision that will be strictly construed.

 

Conversely, if you trying to avoid the harsh consequences of a “no damage for delay” provision, it is advisable to consult with counsel that understands the recognized exceptions to the provision and can assist you in negotiating and presenting your claim based on these recognized exceptions.

 

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.

 

RECOVERING COMPENSATION FOR UNREASONABLE DELAYS UNDER THE SUSPENSION OF WORK CLAUSE

UnknownFederal government construction contracts for fixed-price contracts contain a suspension of work clause found in F.A.R. 52.242-14 (a copy of this clause can be found at the bottom of this posting).   This clause allows the government, through the contracting officer, to order the suspension, interruption, or delay of the construction work.  This clause further permits the contractor to obtain an equitable adjustment for the increased costs it incurs associated with the delay / suspension of its work for an unreasonable period of time. George Sollitt Const. Co. v. U.S., 64 Fed.Cl. 229, 236-37 (Fed.Cl. 2005).  The unreasonableness of the delay / suspension depends on the actual circumstances of the project, but it is this finding of unreasonableness that triggers additional compensation to the contractor.  See id.   The test applied to determine whether the contractor is entitled to an equitable adjustment for additional compensation pursuant to the suspension of work clause is as follows:

 

 

 

 

1.  The delay must be of an unreasonable length extending the contract’s performance;
2.  The delay must be proximately caused by the government;
3.  The delay resulted in injury or damage to the contractor; and
4.  There is no concurrent delay caused by the contractor.

 

CEMS, Inc. v. U.S., 59 Fed.Cl. 168, 230 (Fed.Cl. 2003) quoting P.J. Dick, Inc. v. Principi, 324 F.3d 1364, 1375 (Fed.Cir. 2003).

 

As reflected above by the fourth factor, “even if the government has caused an unreasonable delay to the contract work, that delay will not be compensable if the contractor, or some other factor not chargeable to the government, has caused a delay concurrent with the government caused-delay.”  George Sollitt, 64 Fed.Cl. at 237.

 

This suspension of work clause is designed to make the contractor whole for unreasonable delays, but additional profit would be excluded from any additional compensation owed to the contractor.  See F.A.R. 52.242-14(b).

 

As mentioned in previous postings, contractors need to understand the clauses incorporated into their prime contract so they can appreciate how to best preserve their rights when they encounter a delaying event.  Also, understanding the clauses will enable the contractor to best present their request for equitable adjustment or claim in a manner that supports their position for additional compensation.

 

F.A.R. 52.242-14

Suspension of Work (APR 1984)

(a) The Contracting Officer may order the Contractor, in writing, to suspend, delay, or interrupt all or any part of the work of this contract for the period of time that the Contracting Officer determines appropriate for the convenience of the Government.

(b) If the performance of all or any part of the work is, for an unreasonable period of time, suspended, delayed, or interrupted (1) by an act of the Contracting Officer in the administration of this contract, or (2) by the Contracting Officer’s failure to act within the time specified in this contract (or within a reasonable time if not specified), an adjustment shall be made for any increase in the cost of performance of this contract (excluding profit) necessarily caused by the unreasonable suspension, delay, or interruption, and the contract modified in writing accordingly. However, no adjustment shall be made under this clause for any suspension, delay, or interruption to the extent that performance would have been so suspended, delayed, or interrupted by any other cause, including the fault or negligence of the Contractor, or for which an equitable adjustment is provided for or excluded under any other term or condition of this contract.

(c) A claim under this clause shall not be allowed (1) for any costs incurred more than 20 days before the Contractor shall have notified the Contracting Officer in writing of the act or failure to act involved (but this requirement shall not apply as to a claim resulting from a suspension order), and (2) unless the claim, in an amount stated, is asserted in writing as soon as practicable after the termination of the suspension, delay, or interruption, but not later than the date of final payment under 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.