Standard for Evaluating Delay – Directly from an Armed Services Board of Contract Appeal’s Opinion

David Adelstein | Florida Construction Legal Updates

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 timeWilner 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 damagesId. 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 analysisId.

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 constructionId.

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 suspectId. 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 partId. 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 performanceSauer 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.” SeeBlinderman 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 controlL.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 performanceR.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.

ASBCA Holds That Anticipated Days Of Adverse Weather Do Not Decrease Delay Damages

Maria Panichelli | Obermayer Rebmann Maxwell & Hippel

Many construction contractors working with the United States Army Corps of Engineers (USACE) have seen it happen: they experience a government-caused delay or suspension, which USACE agrees to pay for, but then USACE deducts the anticipated adverse weather days stated in the contract for the delay period from the compensable time extension. That may no longer be a defensible practice after the ASBCA’s recent decision in the Appeal of Granite Construction Company. In that case, the Board held that USACE was not entitled to automatically deduct the anticipated days of adverse weather stated in the contract from the compensable delay caused by a government suspension of work.

In Granite Construction, the contractor was constructing new outlet structures and cutoff walls below two federally administered dams. The contract included a common clause called “Time Extensions for Unusually Severe Weather,” which set forth days of adverse weather anticipated for each month of the year. Following Hurricane Harvey, the government began releasing water from the dams, causing the contract work site to flood.  The government then suspended contract performance for 49 days. Afterwards, the government agreed to compensate the contractor for 30 of the 49 days, but refused to pay for the remaining 19 days. What was the government’s reasoning? The contract stated that there were 19 days of anticipated adverse weather days during the period at issue, so USACE unilaterally deducted those days from the compensable delay.  In fact, USACE has taken a similar position in other cases, but this time the contractor was not willing to accept the agency’s decision. The contractor appealed to the ASBCA, arguing that the suspension was not a weather delay at all, but was caused by the government’s release of water from the dams and the resulting flooding of the work site.

The Board held that USACE was not entitled to automatically deduct the days of adverse weather anticipated by the contract from the compensable suspension. The Board determined that the days of anticipated adverse weather were applicable to calculating a delay under the contract’s Default clause, but not under the Suspension clause. The Board ultimately left the question of whether the contractor was entitled to compensation under the Suspension clause for a later trial. Nonetheless, this case is important for any contractor doing work for USACE, because it provides a legal basis for contractors to resist USACE’s practice of automatically deducting anticipated adverse weather days from government-caused delays and suspensions.

Difficult Task for Court to Analyze Delay and Disorder on Construction Project

David Adelstein | Florida Construction Legal Updates

One of my favorites quotes from a case, and I am sure others in the construction industry feel the same way or can relate, is from the District of Columbia Court of Appeals in Blake Construction Co., Inc. v. C.J. Coakley Co., Inc., 431 A.2d 569, 575 (D.C. 1981):

We note parenthetically and at the outset that, except in the middle of a battlefield, nowhere must men coordinate the movement of other men and all materials in the midst of such chaos and with such limited certainty of present facts and future occurrences as in a huge construction project such as the building of this 100 million dollar hospital. Even the most painstaking planning frequently turns out to be mere conjecture and accommodation to changes must necessarily be of the rough, quick and ad hoc sort, analogous to ever-changing commands on the battlefield. Further, it is a difficult task for a court to be able to examine testimony and evidence in the quiet of a courtroom several years later concerning such confusion and then extract from them a determination of precisely when the disorder and constant readjustment, which is to be expected by any subcontractor on a job site, become so extreme, so debilitating and so unreasonable as to constitute a breach of contract between a contractor and a subcontractor. 

Do you agree with this sentiment?  The reality is that retrospectively analyzing delay on a complicated construction project with numerous moving parts on a day-by-day, hour-by-hour, basis is no easy feat.  It is not easy for the parties and certainly not easy for courts to unravel. With every party claiming delay based on a retrospective analysis there will be another party with either a different delay analysis or providing credible cross examination as to flaws with the delay analysis.  The same bodes true with loss of productivity / inefficiency claims and the particular case-specific facts are important, preferably with evidence such as photos, videos, notifications, daily reports, manpower reports, etc., supporting the facts. But the facts are complicated, and the delay analysis is complicated, and it is a difficult task for a trier of fact to unravel these facts.

This case dealt with a dispute between a prime contractor and a fireproofing subcontractor. The subcontractor claimed its work was hindered for a variety of reasons.  In other words, the subcontractor was impeded from working efficiently and it was incurring unanticipated costs – the hallmark of a lost productivity or inefficiency claim.  The subcontractor sent notice to the prime contractor that it would be suspending its operations and did exactly that resulting in the prime contractor completing the subcontractor’s scope of fireproofing work.  A lawsuit arose and the trial court found the prime contractor liable to the subcontractor.   The trial court found the prime contractor breached implicit obligations in the subcontract as it (i) did not provide the subcontractor a clear and convenient work area that impeded the subcontractor’s work causing the subcontractor to incur additional sums, (ii) failed to reasonably sequence the work, and (iii) provided bad supervision as other trades damaged in-place fireproofing due to poor scheduling and certain space heaters belonging to the subcontractor were stolen.  See Blake Construction, supra, at 576-77 (“We are persuaded therefore that the trial judge properly concluded upon this record that these acts collectively and individually constituted a breach of implicit conditions for performance by [the prime contractor] under the subcontract.”).

The appellate court also agreed with the trial court as to the inapplicability of the no-damage-for-delay provision in the subcontract finding delays resulted from active interference “largely due to [the prime contractor’s] improper work sequencing.”  Blake Construction, supra, at 579.

The appellate court also found that the measure of damages to be awarded to the subcontractor from the prime contractor “is properly calculated by taking the cost of partial performance incurred [by the subcontractor], which was $598,666.75, and subcontracting therefrom the payment received to date by [the subcontractor] from [the prime contractor], which totaled $242,100. The difference between these two figures is $356,566.75, and constitutes the damages for which [the prime contractor is] liable to [the subcontractor].”  Blake Construction, supra, at 579.

Don’t Be Late! (But Assume That Your Construction Project May Be)

Mario Nicholas | Ahead of Schedule

The combination of the COVID-19 pandemic, skyrocketing construction material costs, labor and material shortages, and a hot housing market presents a predictable risk: despite your best efforts, your project might not finish on time. What should owners and contractors do to prepare?

Evaluate whether to waive consequential damages

“What do you mean I can’t recover all my damages?” Owners often unwittingly agree to a mutual waiver of consequential damages as many industry standard construction template agreements include a mutual waiver. The consequences of overlooking a waiver of consequential damages can be devastating. When a project is late, the owner and contractor (but principally the owner in my experience) may suffer consequential damages. As generally known in the industry, consequential damages include, among other things, lost profits, loss of use, increased financing costs, lost opportunities, and damages to reputation. These damages often dwarf the owner’s direct damages and can possibly exceed the total contract value. The strategy for contractors is generally straightforward: insist on a waiver of consequential damages. Contractors may even want to strengthen the template waiver provisions found in many standard construction agreements. Owners, on the other hand, are wise to address this issue head-on during the contract negotiation and not accept the waiver of consequential damages as a foregone conclusion. Market forces will likely dictate whether owners can strike the waiver altogether. But even if the waiver cannot be avoided, owners have options such as: 1, linking the waiver to apply only to non-insurable damages, 2, setting a cap on the recovery of consequential damages, 3, excluding certain categories of damages from the waiver, 4, limiting the waiver to damages incurred prior to the date of substantial completion (during which period the owner may be protected by a liquidated damages provision), or 5, insisting on a liquidated damages provision as a condition for including the waiver of consequential damages. Owners are also cautioned to avoid or limit a consequential damages waiver clause’s application to lost revenue after substantial completion, which arises when construction defects cause the need for repairs and tenant evacuations. Don’t be the party uttering the first sentence of this section.

Consider liquidated damages

To allocate the risk of delay before construction begins, owners and contractors should both consider stipulating to liquidated damages. These should be a reasonable forecast of the owner’s delay damages, and ordinarily should not be a penalty (a liquidated damages provision that is a penalty is at risk of being unenforceable). Contractors benefit from a liquidated damages provision because they can price the risk of delays from the outset of the project and better evaluate the cost of accelerating. Contractors also often pair an agreement on a liquidated damages provision with a mutual waiver of consequential damages. Among other benefits, this pairing means the contractor’s risk for delays substantially decreases once the project reaches substantial completion as liquidated damages are typically linked to the date of substantial completion. Owners benefit from a liquidated damages provision because they can predictably measure the cost of delays. Owners can also use liquidated damages to push contractors that fall behind schedule. Owners are cautioned, however, to avoid back-of-the-napkin calculations of liquidated damages as undervalued liquidated damages can backfire and possibly even motivate the contractor to finish late. As discussed in a prior column written for the DJC (“When to have the hard talk about setting liquidated damages,” by Colm Nelson, on Sept. 18, 2020), deciding when to negotiate liquidated damages is also a tricky issue that should be approached with care during each project.

Double-check claim-related contract provisions

Does your construction contract require the contractor to submit an analysis (often referred to as “time impact,” “critical path,” or simply “delay” analysis) to substantiate a request for additional time? Can you recover attorney fees under your contract if you have to file suit or demand arbitration? Can you recover expert costs in the event of a dispute (for instance, the expert hired to prepare the required critical path analysis)? Will you be presenting your delay claim to an arbitrator experienced in the construction industry or a judge or jury that may have little to no familiarity with construction claims, let alone delay analyses? Does your contract have a force majeure provision? How about a material cost escalation clause? These are some of the issues that should be carefully reviewed in any contract negotiation with an eye toward the risk of project delays.

One silver lining of the COVID-19 pandemic may be the reminder that we should always expect the unexpected. That is the right mindset when reviewing your next construction contract amid the many challenges facing the industry today.

Construction Industry Professionals: Check Your AIA Contract Documents For Your Rights And Obligations In Response To COVID-19 Related Construction Delays

Alexandra A. Fahringer | Schnader Harrison Segal & Lewis

In the wake of the COVID-19 outbreak and subsequent state and local government shutdown orders, some construction projects have come to an abrupt halt while others face significant delays. Across the industry, project owners, general contractors, subcontractors, sub-subcontractors, and architects are reviewing their AIA Contract Documents looking for a standard force majeure clause to decide whether they will be entitled to an increase in Contract Time or Contract Sum, how to best respond to this kind of request, or whether they will have an option to terminate the contract altogether.

This article will address where to look for the key provisions in the AIA Contract Documents that could assist in assessing an owner’s, contractor’s, subcontractor’s, or architect’s response to project complications related to COVID-19. As parties confer in dealing with the impact of COVID-19, these various provisions may be important to clarify basic rights and obligations.

OVERALL CONSIDERATIONS

The AIA Contract Documents do not have a clearly labeled force majeure clause, but they do have several provisions drafted to address the same risk-shifting concepts as a standard force majeure clause. When a contract does contain a traditional force majeure clause, it typically provides that if an unforeseeable event occurs without the fault of either party, performance under the contract will either be excused or delayed. Although standard AIA Contract Documents do not include this specific clause, the related provisions in the standard AIA forms generally create an option for both parties (i) to request a change in schedule, Contract Time or Contract Sum, and (ii) to exercise suspension or termination rights.

In addressing issues related to COVID-19, construction professionals should consider: (1) reviewing their existing contracts; (2) discussing their possible needs for modifications to the Contract Time or Contract Sum internally; and (3) documenting the ongoing COVID-19 response and local governmental orders in the vicinity of the project which caused a delay or increased costs. It may also be important to initially review and understand the notice provision in the Contract and confirm compliance with the notice provision even as verbal or electronic negotiations proceed about these issues.

LIST OF RELEVANT AIA CONTRACT PROVISIONS

The following sections in AIA Contract Documents may be helpful to construction professionals facing challenges related to COVID-19:

Owner / Contractor Contract (A201-2017)

  • Section 8.3 governs delays and extensions of time. The standard AIA documents permit the Contract Time to be extended if the Contractor incurs delays beyond their reasonable control.
  • Section 15.1.6.1 addresses the method for applying for claims for additional time.
  • Section 15.1.3 advises of method of notice. It is crucial for all parties to closely read the notice provision. For example, if the method provision requires notice by certified or registered mail, the sender (Owner or Contractor) will want to confirm they are abiding by this provision in giving COVID-related notices (even if it would be more convenient to send an e-mail).
  • Owner’s suspension for convenience and termination for convenience are governed by Sections 14.3 and 14.4, respectively. Please note, under owner’s termination rights, depending on the terms of the contract, the Contractor could be entitled to a termination fee, among other expenses, which should be specified in Section 7.1.
  • Should a contractor or owner need to make a claim, it is also important to review the claim process in Section 15, including the role of the Initial Decision Maker and alternative dispute resolution.
  • Lastly, it is worth noting that the standard contract includes a waiver of consequential damages by both owner and contractor in Section 15.1.7.

Subcontractor / Contractor Contract (A401-2017)

  • Subcontractors should pay particular attention to the language in Article 2 of their contract with the contractor. The standard A401 incorporates the applicable provisions of the A201 and gives the contractor the rights and remedies of the owner and the subcontractor the rights and remedies of the contractor.

Architect / Owner Contract (B101-2017)

  • The schedule for performance of Architect’s services is governed by Section 3.1.3 and per the terms of the standard contract, the Architect’s time frame can be extended for “reasonable cause.”
  • Section 3.6.2.1 sets forth the expectations for the Architect’s evaluation of the work at different stages of construction.
  • If the Architect anticipates needing to perform additional services, outside the original performance obligation, Section 4.2.1 sets forth the method by which the Architect must notify the Owner.
  • Similar to the A201, the Owner also can suspend or terminate the agreement under the standard B101. The sections which govern the Owner’s suspension and termination rights are set forth in Sections 9.2 through 9.6.

CONCLUSION

At this point in their COVID-19 response, many parties are simply trying to work things out, and to take whatever next steps are most sensible and efficient. This is appropriate; however, it is critical to be aware of a specific contract’s provisions for delay and additional expense, and confirm that all parties comply with all required notice provisions in order to preserve their rights under the contract. Finally, do not assume all contracts have standard provisions. As always, construction industry professionals should consult their specific project contracts because provisions are often negotiated outside of the standard AIA Contract Documents.