Bradley Sands | ConsensusDocs
Providing written notice of delay to subcontractors when a project is behind schedule is a regular part of good project documentation practices. A properly targeted delay notice is an important, project correspondence that is an appropriate response to a subcontractor’s specific delay or ongoing delays. However, when a project falls behind schedule and the project management team is in the fog of war, it could seem like a good idea to start firing off project delay notices to any and every subcontractor. While these delay notices may provide a short term burst of productivity, you could find that those same notices are aimed back at you in a future litigation.
This article identifies two potential unintended consequences of sending delay notices that a contractor should keep in its sights and then provides recommendations for properly calibrating future delay notices in light of these potential consequences.
Acceleration: You Might Get What You Ask For
A delay notice to a subcontractor could be interpreted as—or expressly state—direction to the subcontractor to accelerate its work. When a subcontractor is directed to accelerate its work, it may incur additional costs for premium, extended, or overtime labor, additional crews, increased supervision costs, increased overhead costs, and losses due to productivity impacts from the acceleration (e.g., stacking of trades and fatigue). A subcontractor may be entitled to recover these increased costs that are caused by a direction to accelerate.
Direct acceleration occurs when a subcontractor is required to complete its work in less time than permitted under the subcontract. In order to recover for the increased costs of acceleration, a subcontractor must establish three things: (1) the subcontractor is not responsible for any delays that led to the order to accelerate, (2) that the subcontractor was ordered to accelerate, and (3) that the subcontractor in fact accelerated and incurred extra costs.1
The delay notice could also support a subcontractor’s constructive acceleration claim. Constructive acceleration arises when a subcontractor is required to adhere to the original subcontract schedule even though the subcontract provides the subcontractor with periods of excusable delay. A subcontractor may be entitled to recover these increased costs that are caused by constructive acceleration, even if there is an otherwise enforceable “no damages for delay” clause.2
A subcontractor generally must provide notice of excusable or compensable delay in accordance with the subcontract requirements in order to demonstrate it was constructively accelerated. However, a subcontractor’s requirement to provide notice could be waived under certain circumstances, such as if the contractor informs the subcontractor that no extensions will be permitted.3
A contractor should still diligently inform its subcontractors of their caused delays as part of good project schedule management, despite the potential risk of an acceleration claim. If a subcontractor does in fact need to accelerate its work to overcome a delay it caused, the delay notice in and of itself does not impute these acceleration costs to the contractor. Indeed, a key element of a direct or constructive acceleration claim is the subcontractor is not responsible for, or excused from identified delays. Consequently, a delay notice should be just what its name suggests: notification to the subcontractor responsible for a delay event.
Concurrent Delay: Circular Firing Squad
Errant delay notices can leave a contractor vulnerable to a concurrent delay defense. Concurrent delay involves the premise where two parties cause delays, such as a contractor and subcontractor, then neither party can recover damages for that period of time when both parties are at fault. Concurrent delay can be an excusable delay that entitles a subcontractor to an extension of time, but not compensation.
Delay notices will often be relied on by contractors to support delay claims against subcontractors. However, delay notices simultaneously sent to numerous subcontractors may provide these same subcontractors evidence of concurrent delay. In a similar vein, a contractor must also be cautious when blaming all project delays on a single subcontractor when there are multiple subcontractors at fault. While each subcontractor may not be contemporaneously aware of delay notices sent to other subcontractors, these documents will often be revealed during discovery.
A contractor could be faced with numerous delaying subcontractors but these subcontractors may not concurrently delay the critical path. The critical path, the longest series of work activities through the performance of a project, may continually evolve on a project. When there is a concurrent critical path delay between subcontractors, a contractor is generally required to provide a reasonable basis for apportioning the delay between subcontractors who are concurrently responsible for the delay. Apportioning delay can be supported by delay notices that provide facts that distinguish the separate delays caused by each delaying subcontractor.
An owner could also rely on a contractor’s delay notices to its subcontractors to prove that the contractor is responsible for delay and expose the contractor to liquidated damages. The contractor is responsible for managing the schedule under its contract with the owner and the various schedules under each subcontract. While these schedules can be related or intertwined, an impact to one schedule does not necessarily mean the same impact to the other schedules. An overly gratuitous delay notice to a subcontractor blaming the subcontractor for critical path delays could prove fatal to a contractor’s delay claim against the owner.
Again, a contractor should still provide parties with the requisite notice of their caused delays, despite the potential risk of a concurrent delay defense. A contractor is generally responsible for leading the project schedule coordination efforts of its subcontractors. During the project, a delay notice is a means to manage the project schedule and inform parties of their delays so they can contemporaneously mitigate the effects of delay. The determination of concurrent delay, apportionment, or damages resulting from project delays, will typically occur at the conclusion of the project through a critical path delay analysis. Prudent schedule management using properly calibrated delay notices will help avoid disputes regarding delay from arising in the first place.
Suggestions to Properly Calibrate Delay Notices
1. Rely on the Subcontract Language
Delay notices should clearly and succinctly state how and why the noted delays are the subcontractor’s responsibility to rectify under the subcontract. Cite the subcontract provisions the contractor relies on and state the expected subcontractor response. Also, the specific schedule milestones from the subcontract that the subcontractor has missed or planned productivity that the subcontractor has not achieved should be expressly articulated.
Written notice of the subcontractor’s delay is often a condition precedent in a construction contract to certain contractual remedies against a delaying subcontractor. A subcontract may require that a subcontractor provide and work towards a recovery schedule, or grant a contractor the right to terminate a subcontractor for default after a certain time to cure. The delay notice should identify if the letter is provided to satisfy the required condition precedent and when the resulting obligation or right will be effected.
2. Timely Recognize Excusable Delay
In order to avoid unintended acceleration, delay notices should be drafted in consideration of the subcontractor’s prior or known forthcoming requests for extensions of time and any potentially excused delays. Time extensions, however, need not be granted immediately. If the contractor is still reviewing time extension requests, or has passed them on to the owner for review and approval, that should be stated in the delay notice. Subcontractor claims for constructive acceleration require that the contractor is afforded an opportunity to grant or deny a time extension.
The contractor should also work with the owner to timely grant time extensions for subcontractors when warranted. If the owner is reluctant to grant warranted time extensions, the contractor can consider agreeing with the subcontractor to time extensions by relying on “liquidating language” in the subcontract or via a change order.4 “Liquidating language” will generally condition and limit the contractor’s liability to the amount recovered from the owner, shifting the risk of a subcontractor’s constructive acceleration claim to the owner.
3. Keep Your Schedule Updated
Project schedules should be regularly updated to reflect contemporaneous events so the schedule is reliable for evaluating delay events. However, project schedules are often not updated on a regular basis during the project. Therefore, delay notices should address delay impacts as reflected in the most recent schedule update, with the caveat that a full determination of the impacts may not be known until a critical path analysis is conducted at the end of the project. The purpose of a delay notice is notice, not a final determination of delay liability and damages.
Nevertheless, a delay notice should characterize the subcontractor’s delay and the resulting impact as the project schedule demonstrates. A delay notice may identify whether the claimed delay is a critical path delay to the overall project schedule (if known at the time of the notice), a critical path delay for the subcontractor’s schedule (or an impacted subcontractor’s schedule), a near-critical delay (a delay that could end up on the project’s critical path), or what successor activities are at risk of being delayed.
4. Show Your Work
Any facts, project correspondence, or in-person conversations relied on to reach the conclusions stated in a delay notice should be included in or referenced by the delay notice. Good faith verbal agreements made for the benefit of the project are soon forgotten when other issues arise later on. Also, these documents cited in the delay notice may ultimately support a reasonable basis of apportioning delay. It is often not until the project is completed and the dust settles when a critical path schedule analysis can quantify the project impacts and identify the parties responsible for project delays. Contemporaneously identifying the key project documents for specific delays or issues will assist the post-project analysis.
5. Objectively Pass On Information
A contractor should be a fluid conduit of project information for the construction project participants. This will mitigate a contractor’s risk of getting stuck in a two-front war against both an owner and a subcontractor.5 A contractor’s project team, the owner, and each subcontractor will likely all have different perspectives regarding the cause and impact of various project delays. When delay notices are sent out to subcontractors, the contractor should clearly articulate the source of the information and representations of delays.
For example, a delay notice may be used to communicate an impact alleged by one subcontractor caused by another subcontractor, or the owner may perceive a subcontractor is behind schedule. In these instances, the contractor should both conduct its own investigation of the allegations and pass on this information to the accused subcontractor as quickly as possible in an evenhanded manner.
A delay notice can also be used as an opportunity to notify a delaying subcontractor that the contractor is pacing the work of other subcontractors. Pacing is a conscious decision in response to a contemporaneous delay to pace (decelerate) non-delayed work to mitigate costs.6 Putting a subcontractor on notice of a contractor’s mitigation efforts using pacing will help diffuse later arguments of concurrent delay. Otherwise, a post-project critical path analysis could see the paced work as concurrent delay, when in fact it is an intentional cost mitigation action. It should be noted, however, that there is a minimal body of case law regarding pacing.
Don’t wait to provide notice of a delay event or ongoing delay to a delaying subcontractor. A delay notice is an opportunity to set your sights on project issues, clearly articulate key facts as they occur, and evaluate and explain the immediately perceived impact. Contemporaneously setting forth project events regarding delays and the actions taken as a result allows a contractor to control the narrative and mitigate unintended consequences from sending these all important regular project correspondence.