Concurrent Delay: the Latest Guidance From the Courts

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Laura Johnson | Bryan Cave Leighton Paisner

Summary

In Thomas Barnes & Sons plc v Blackburn with Darwen Borough Council, the TCC had to consider whether there was a concurrent delay and if so how did that affect the parties’ rights under the contract. The delay to the works in this case entitled the employer to terminate the contract and engage a third party to complete the works. There are debates as to what concurrent delay actually means but the SCL Delay and Disruption Protocol, 2nd edition helpfully explains that it is:

“the occurrence of two or more delay events at the same time (one an Employer Risk Event, the other a Contractor Risk Event) and the effects of which are felt at the same time. For concurrent delay to exist, each of the [events] must be an effective cause of Delay to Completion ([meaning] the delays must both affect the critical path).”

How this works in practice will depend on the facts, and this judgment provides a useful illustration and reminder of the court’s approach to concurrent delay.

What happened?

The claimant contractor, Thomas Barnes & Sons plc (in administration) and the defendant employer, Blackburn with Darwen BC, entered into an amended JCT SBC with Quantities, 2011 Edition for the construction of Blackburn bus station, to include office space and a concourse for access to the buses.

During the project there were delays to the structural steel works (for which the contractor was not contractually responsible), completion of which were necessary for the subsequent works and final interior finishes. However, while the structural steel work delays were ongoing, the contractor suffered delays to its roof works, which were also a prerequisite to the interior finish leading the employer to terminate the contract on this basis and procure a replacement contractor to complete the works.

The contractor sought an extension of time (EOT) due to the structural steel delays and brought a claim seeking:

  • Monies considered due under the contract at the time of termination; and
  • Damages for wrongful termination.

Overall, the court held that issues with both the structural steel and roof covering works were concurrent causes of delay, as both works items were on the critical path (to completion of the internal finishes) and both were causing delay over the same period. The judge agreed with the employer’s delay analyst, that the roof cladding and glazing could not be progressed until the roof coverings were completed and also that the majority of the internal finishes and services could not be progressed until the roof coverings were in place.

The court held that although the contractor had established an entitlement to an EOT, because of the contractor’s delay-related default, the employer was still entitled to exercise both its contractual right to terminate and its common law right to terminate for repudiatory breach.

Consideration of the termination rights and the related sections of the judgment are outside the scope of this blog. In brief, while the employer had failed to comply with the notice requirements of the JCT contract, that did not invalidate the effectiveness of its acceptance of repudiatory breach, nor did it, in itself, amount to a repudiatory breach of contract that could be accepted by the contractor.

Determining concurrent delay

The judgment provides useful commentary on determining concurrent delay based on established case law and industry guidance.

The court considered the decision of Akenhead J in Walter Lilly v Mackay, stating that four observations were helpful in deciding this case:

  • The court is not compelled to choose only between the rival approaches and analyses of the experts. It is a matter of fact for the court to decide what delayed the works and for how long.
  • When considering delays, one should generally have regard to the item of work with the longest sequence.
  • It is not necessarily the last item of work that causes delay.
  • Contemporaneous complaints that were never agreed upon by the parties, established or implemented, are irrelevant to a delay analysis.

The judge referred to Keating on Construction Contracts, 11th edition with regard to the application of the principle of concurrent delay in the context of an EOT contractual claim (counsel agreed that this was an accurate summary and settled law). In brief:

  • It depends on the precise wording of the contract.
  • A contractor is probably entitled to an EOT if there was an effective cause of delay, even if there was another concurrent cause of delay for which the contractor was responsible.
  • A contractor will only be entitled to recover loss and expense if it satisfies the “but for” test. The contractor’s claim will fail if there is another cause of loss for which the contractor was responsible (even if the cause relied on is the dominant cause).

The court held that there was concurrent delay in this case:

“The plain fact is that both of the works items were on the critical path as regards the hub finishes and both were causing delay over the same period.”

The internal finishes could not have started earlier because of the delay to the structural steelwork. The court was satisfied that the converse was also true – it could not have started earlier due to the roof delays.

The court also considered the SCL Protocol when considering the differing delay analysis methods selected by each expert. The Protocol aims to provide “useful guidance on some of the common delay and disruption issues” and that “irrespective of which method…deployed, there is an overriding objective of ensuring that the conclusions derived from [the delay] analysis are sound from a common sense perspective”, highlighting that a practical approach depending on the facts of the case was important in this case.

Conclusion

In this case, the court seems to have taken a very practical approach in determining that both events were causes of delay and therefore there was concurrent delay entitling the contractor to an EOT but not recovery of losses (in line with the approach in Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd. This was the case on the facts here and this is a useful addition to the guidance from the courts in other cases such as Adyard Abu Dhabi v SD Marine Services and De Beers UK Ltd (formerly Diamond Trading Co Ltd) v Atos Origin IT Services UK Ltd.

Concurrent delay is an area that is not expressly covered in the JCT form of contract, although the North Midland decision (as upheld by the Court of Appeal in North Midland Building Ltd v Cyden Homes Ltd has shown that parties can agree in advance how to deal with concurrency. This is what the FIDIC 2017 suite of contracts has sought to do in clause 8.5 (Red Book 2017) and if compensation events are assessed chronologically and prospectively as intended, concurrency should be less of an issue under the NEC form of contract. What is certain is that this will continue to be a common issue when looking at delay and one for the courts to decide based on the specific circumstances, and contract, in each case.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Mitigating or Preventing Water Damage

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Kevin Moore | Woodruff Sawyer

Water’s capacity to inflict severe and costly damage looms large over all construction projects. Whether it’s caused by Mother Nature or human error, water damage presents a ubiquitous threat. Because construction water damage claims can climb to hundreds of thousands of dollars, it’s worth taking steps to mitigate or prevent incidents, if possible. The cause of water damage largely dictates how an insurance policy responds to a construction-related claim. Losses can include property damage, debris removal, delayed costs, lost profits, and more.

Heavy duty crane truck construction site
The Two Major Sources of Water Damage

Construction site water damage threats exist both within a project itself and from external factors, such as the weather. Rain is the most likely external factor that can cause water damage, as it may get into any exposed or unfinished area and damage the structure and equipment.

Internally, faulty installation, physical defects, or incidental construction damage may cause bursting or gradual leaking in plumbing and sprinkler systems. Accidents are also a possibility; projects sites are naturally busy with lots of moving parts. Workers may accidentally damage a water source or puncture a pipe through a wall. Whether water damage is caused by internal or external events, costly project delays can be expected in the wake.

Keep an eye out for typical internal risk factors, including:

  • Uncovered building openings
  • Water delivery/drainage/sprinkler system failures
  • Subsurface drainage problems
  • Building envelope system deficiencies
  • Site draining problems
Identifying Water Damage Risks

A construction site’s risk exposure rises with every inch of water system it contains. The more water sources there are nearby, there is a greater risk of exposure. Each source, drain, and potential problem should be identified before construction begins.

Be aware that even the smallest design flaw—in the water systems or the building itself—can allow water to spread quickly through a construction site.

Try to identify the potential for two kinds of common construction water problems:

  • Busting pipes
  • Gradual leaks

Piping system failure is one of the most common and destructive causes of water damage. Older pipes are particularly at risk, so they should be attentively maintained and tested.

External factors may also lead to pipe bursting. For example, freezing temperatures can cause ice to build up in pipes, and ice build-up can cause pipes to burst. Earthquakes are another external threat. Facilities in earthquake-prone areas (like California) should prepare for leaks and breaks by ensuring piping components are sway-braced.

Gradual leaks might be less noticeable when they occur, but they can cause significant damage if allowed to continue. Frequently monitor for leaks of any size and address the root issue as soon as possible.

Understand Your Insurance Policy

Prepare for water damage to your construction site by carefully reading your insurance policy to discern what coverages, deductibles, and limits apply. Remember that a policy’s response to the claim is contingent on the source of the water damage. Notably, a policy will typically differentiate between damage caused by a flood and damage from other sources, including on-site leaks. Make sure you understand how flooding is defined and fits into the coverage.

Mitigation Process

Pre-Construction

Perform a constructability review to identify and eliminate design failures that potentially could cause water damage.

  • Evaluate contract documents and insurance policy language.
  • Evaluate specified materials/systems and how they will interrelate.
  • Evaluate the site for water drainage.
  • Ensure the drainage of water away from the structure and planned excavations when performing site planning and preparation.

Schedule the installation and testing of piping systems, such as hydronic systems, as early as possible in the project.

During Construction

Remain aware and identify potential problems that may lead to water damage.

  • Properly supervise work of subcontractors.
  • Perform quality control checks.
    • Identify and resolve potential water issues quickly.
  • Mock-up all critical waterproofing systems in advance.
    • Test areas of the mock-up that are prone to water infiltration and ensure any issues are addressed.
    • Schedule a mock-up review meeting with project personnel to discuss potential waterproofing issues.
    • Schedule a meeting to discuss critical building system details and inspection concerns.
    • Include mock-up approval as an activity in the schedule.
  • Develop a severe weather plan that assigns responsibilities for securing the site and mitigating any water damage. The plan should address:
    • Take steps to secure and shield the site in the event of a rainstorm.
    • Develop a specific and detailed response plans for each potential weather threat.
  • Perform a final inspection and pressure test immediately before charging piping systems with water even if the system has previously passed a hydrostatic test.
    • Piping systems may be altered either intentionally or unintentionally, resulting in a water release upon charging. The pipes should routinely be inspected and approved before charging.
  • Protect excavations from the accumulation of water which can potentially infiltrate the structure, alter the moisture content of affected soils and/or undermine the foundations.
  • Maintain backup storage plans for water-sensitive materials and equipment.
Post Construction
  • Address construction defects.
  • Maintain a quick-response team for warranty issues. Any water issues should be resolved within a maximum of 48 hours or sooner, if possible.

Most threats of water damage to your construction site can be prevented. Take the cautionary steps, including knowing the most likely threats, both catastrophic and small, and identifying internal and external sources of water damage. Further, it’s important to understand your insurance policy and how it responds to various claims.

Staying a step ahead of water damage threats can save time and money for your construction project. While you can’t eliminate every risk, you’ll mitigate the vast majority of them.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Ohio Court Reforms Construction Contract to Correct “Manifest Absurdity” in Termination for Convenience Term

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Anthony Melon | Troutman Pepper

Hanuman Chalisa, LLC v. BoMar Contr., Inc., 2022-Ohio-1111, 187 N.E.3d 1108 (Ct. App.)

Hanuman Chalisa LLC (owner) contracted BoMar Contracting, Inc. (BoMar) to construct a hotel in Columbus, OH. The contract consisted of the AIA A101-2007 and AIA A201-2007. The owner later terminated BoMar, alleging deficiencies in BoMar’s work. The parties disputed whether the owner terminated the contract “for cause” or “for convenience.”

The case proceeded to trial, concluding that the termination was one for convenience. Section 14.4.1 of the contract provided that in the event of a termination by the Owner for convenience, the “Owner shall pay the Contractor according to the terms of Section 13.1 … .” However, Section 13.1 did not speak to damages in the event of a termination for convenience. It provided only that the contract was governed by the laws of the state where the project was located.

BoMar argued that the cross-reference to Section 13.1 was a typographical error, and the parties intended to refer to Section 14.1.3, which provided that the Owner will make payments for “work executed, including reasonable overhead and profit and direct costs incurred by reason of such termination.” The Owner argued that the parties could not have intended to refer to Section 14.1.3 in the event of a termination by the Owner because Section 14.1.3 was titled “Termination by the Contractor.”

The trial court held that the cross-reference to Section 13.1 was a typographical error and awarded BoMar damages under Section 14.1.3, including a 25% margin for overhead and profit. The court explained that it:

[M]ust effect the logical meaning of the [Contract], and that meaning cannot be that [BoMar] would not be paid for the work it completed if [Owner] terminated the [Contract] for convenience. That would be a nonsensical result because it would allow the Owner to exceed the benefit of the bargain, which is not something [BoMar] would rationally agree to. Courts are permitted to interpret a contract so as to not create a “manifest absurdity.”

The appeals court affirmed the holding on two bases. First, the trial court’s reformation of the contract to account for the “obvious” typographical error in Section 14.4.1 was consistent with the equitable remedy of reformation, which allows a court to modify the language in a contract where the parties’ true intentions have not been expressed due to a mutual mistake. The fact that no extrinsic evidence was submitted to support a finding of mutual mistake was of no moment.

The appeals court also found that the damages awarded under Section 14.1.3 were consistent with Ohio law. In Ohio, damages for breach of contract are generally based on the nonbreaching party’s expectation interest, reliance interest, or restitution interest. Damages available specifically for terminations for convenience include restitution damages (which permit recovery of the benefit conferred on the breaching party), but not expectation damages (which place the nonbreaching party in the position it would have been in but for the breach). Section 14.1.3 limited BoMar’s recovery to restitution damages, so even assuming the trial court erred by reforming the contract to award damages under Section 14.1.3, an award of restitution damages was appropriate.

The appeals court modified the award of a 25% margin for overhead and profit because the contract unambiguously specified a 5% margin for overhead and profit. While the contract provided several blank spaces dedicated to payments for change order work, the parties left all such spaces blank. Had they mutually intended to provide a greater margin for overhead and profit on change order work, the parties would have provided language to that effect. The trial court erred by failing to apply the contract as written.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Construction Contract Tip – Subcontractors, Don’t Waive Your Right to a Lien

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Sam DeBaltzo | Tonkon Torp

In the course of reviewing construction subcontracts, I’ve recently seen provisions similar to the following (simplified for convenience and confidentiality):

“The subcontractor shall reimburse the [Contractor and/or Owner] for any costs and expenses for any claim, obligation, or lien that arises from the performance of the work.”

“The subcontractor shall remove and discharge any lien, claim, security interest, or other encumbrance related to the subcontractor’s performance of the work.”

The provisions are often followed with boilerplate requirements for paying the third-party claimant, bonding, reimbursement of attorneys’ fees, indemnification responsibilities, or other ways of providing security to the owner or general contractor. 

The purpose of these types of provisions is clear: owners want their projects completed free of liens, and they want the person responsible for the work to make sure that happens. This is an understandable position, and it is reasonable for any construction contract to require lien waivers. The problem is that these provisions do not require payment prior to the waiver.

Yes, if a subcontractor is paid, it should agree to keep the project clear of liens and remove any liens filed by its respective subcontractors or suppliers. But, until payment has occurred, retaining the powerful lien right is essential for any prudent subcontractor. Whether intentional by the drafting party or not, these provisions suggest the subcontractor is agreeing to waive its lien rights even when the owner or contractor fails to pay. 

With these specific provisions, I find the solution is simple and relatively unobjectionable; I like to add the phrase “provided subcontractor has been paid for the work” at the beginning of the phrase. Subcontractors should be on the lookout for these and other potential pitfalls, and make sure they do not unwittingly leave themselves unprotected by accepting provisions that are inherently unfair.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Recent Supreme Court Decision Could Have Substantial Impact on Builders

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Cassidy Ingram | Ahlers Cressman & Sleight

On October 27, 2022, the Washington State Supreme Court issued a decision which could have a substantial impact on the enforceability of contract clauses that require litigation to be commenced within a stated period of time from project completion. In Tadych v. Noble Ridge Construction, Inc.,the Supreme Court held that the contractual one-year statute of limitations for bringing claims against the contractor was substantively unconscionable and reversed the Court of Appeals.

In Tadych, plaintiff owners (the Tadychs) contracted with defendant contractor (Noble Ridge Construction, Inc., or NRC) for the construction of a custom home in 2012. The contract included a one-year claim limitations clause that required claims to be raised within a one year period from project completion and that any claims not raised during the one-year period would be waived. In December 2013, as the project neared completion, the Tadychs met with NRC to identify any outstanding project issues. The Tadychs noted several, including rainwater pools at the landing at the bottom of the stairs and several nicks and cracks on the stucco exterior walls.

The Tadychs moved into the home on April 8, 2014, and the City of Seattle Department of Planning and Development conducted its final site inspection on April 15 and approved the residence for occupancy on April 23. In January or February of 2015, the Tadychs began to notice a shift in their home. In February of 2015, the Tadychs engaged the Construction Dispute Resolution (CDR) to review NRC’s work. CDR raised concerns about the adequacy of the home’s construction and prepared a written report in March 2015 indicating several deviations from the architectural plans and building codes. The Tadychs sent this report to NRC, who assured the Tadychs that NRC’s work followed all requirements and rejected any claims that there were deviations from the plans. The Tadychs continued to notice issues with the home through October 2016.

In August 2017, the Tadychs filed a breach of contract action against NRC, arguing that the one-year claim limitations clause was substantively unconscionable because they could not have discovered the latent defects within that time period or, alternatively, that NRC should be estopped from asserting it. NRC moved for summary judgment, arguing that the Tadychs’ lawsuit was time-barred under the one-year contractual claim period. The trial court granted summary judgment in favor of NRC and the Court of Appeals affirmed. The Supreme Court reversed the Court of Appeals and ordered the matter go to trial.

The Supreme Court held that the one-year claim limitations provision was substantively unconscionable, essentially meaning that it is too unfair to enforce. The Court reached this decision by stating that the one-year limitation deprived the Tadychs of the six-year statute of limitations established under chapter 4.16 RCW to seek damages for faulty construction. Additionally, the Court held that because the Tadychs were laypersons and NRC was a sophisticated general contractor, a power dynamic existed which gave the Tadychs less bargaining power to fully understand the contract it was entering. The Court also viewed the fact that the provision was buried in other contract language, was not expressly negotiated, and provided no benefit to the homeowners as significant factors rendering the contract term unenforceable.

Commentary: The initial reaction to this case by contractors or those who represent contractors may be that this decision is problematic for contractors seeking protection from claims for defective work that appear more than one year after project completion. However, this is a ruling that could also benefit contractors. An open question is whether this WA Supreme Court decision will have any bearing on public owners whose standard contractual terms and conditions contain suit limitation clauses and whether such clauses will be enforceable. For example, the Washington State Department of Transportation’s standard specifications provide that “all claims of causes of action which the Contractor has against the Contracting Agency arising from the Contract shall be brought within 180 calendar from the date of final acceptance.” This provision is harsher than the one in Tadych. First, it provides for a shorter claim limitation period (180 days) than the one-year period shown in Tadych. It also provides the time limitation period for only the contractor, not for the public owner. Additionally, unlike private contracts, contractors may not negotiate a public contract.

Similar provisions can be found in contractual language utilized by other public owners, such as many school districts for school construction projects. These provisions require litigation to be commenced 180 days after Project Acceptance by the public owner. It will be interesting to see if a court would find such provisions in the WSDOT standard specifications or other public works contracts substantively and procedurally unconscionable following Tadych, given the short time period, the one-way limitation, and the lack of negotiating power on public works contracts. Tadych, at a minimum, will lead contractors to challenge such clauses, and it is likely that contractors stung by other contractual waiver provisions will rely on Tadych to challenge enforceability of such provisions.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.