Tag Archives: Construction Delays

When is a Project Delay Material and Actionable?

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Richard G. Erickson | Snell & Wilmer

Welcome to 2022!  This year, the construction industry will undoubtedly reflect on the last two years as unprecedented times plagued by construction project delays.  The COVID-19 pandemic contributed to suspension of work and closure of construction projects worldwide in 2020.  The end of 2021 brought additional delays caused by an inexplicable clog in the supply chain of construction materials.  The combined impact of these events on project milestones and completion deadlines led our clients to ask, with unusual and particular urgency, who is liable for such delays and how do contracting parties lessen the consequences from such unexpected and uncontrollable delays. 

Granted that project delays are nothing new or unusual.  They were common enough before inflation caused shipping complications and pandemic decimated the construction labor force.  All delays, whatever the source, variably cause loss to all players on a construction project.  But not all delays matter when it comes to claims and remedies available to the contracting parties in dispute resolution, where the determinative focus is on material delays impacting the entire project and on delays the claimant can credibly prove.    

Most, if not all, jurisdictions interpret actionable delays from the contract documents for the project.  The contract is definitely where you should start before pursuing any delay remedies.  Delay remedies may be a time extension only, or a time extension plus your additional general conditions.  Some delay remedies may be barred by the contract’s express terms and may be enforced adversely by the courts when such contract terms are indisputable.  See Quinn Constr. v. Skanska USA Bldg., Inc., 730 F. Supp. 2d 401, 411 (D.C. Pa. 2010) (enforcing the subcontractor’s contractual waiver of claims for delay and disruption damages).  On the other hand, delay damages that are expressly allowed by the contract—like overtime necessitated by the delays—are usually actionable and recoverable.  Id.  However, not only the contract terms, but applicable law, may affect the outcome.

As an example, other delay remedies may not be expressly allowed by the contract but may be recoverable if they were sustained on the critical path of the project schedule and were not caused by the claimant themselves.  The term “critical path” is familiar enough as an industry term but is often mistaken as a determinative legal principle.  Consider this clarification of critical path in Quinn:

“Critical path” is a term of art, not a legal concept; a project’s critical path is simply a collection of those construction tasks that cannot be delayed without delaying the entire project.  730 F. Supp. 2d at 407 (citing 5 Philip L. Bruner & Patrick J. O’Connor, Jr., Bruner & O’Connor on Construction Law § 15:120 (West) (case citations omitted). … While [Critical Path Methodology] has generated a technical terminology, the legal requirement that it is used to analyze is general and commonsensical: a contractor must prove that a delay affected not just an isolated part of a project, but its overall completion.  730 F. Supp. 2d at 408; see also Cortinas Painting & Rest., Inc. v. Corp Inc., Constr., 2017 WL 4640326 *7 (Wash. App. 2017) (“[c]ritical path methodology analyzes the legal requirement that a delay affects overall completion of a project.”) (citing Morrison Knudsen Corp. v. Fireman’s Fund Ins. Co., 175 F.3d 1221, 1233 (10th Cir. 1999)). 

Thus, it is important to distinguish your burden of proving a material and compensable delay from the critical path methodology.  Critical path methodology is one means of proving that the delay is actionable, ideally with reliable expert testimony and contemporaneous evidence showing impact on the overall project schedule completion date.    

Causation, on the other hand, is a key legal element that must be proven along with facts establishing delays on the critical path.  A compensable delay is usually a delay caused by someone else on the project, so a contractor cannot cause its own critical path delays and credibly prove it is entitled to delay damages.  If the contractor, for example, was carelessly late in ordering its materials, the contractor will have a much harder time proving that supply chain complications were to blame for blown completion dates on the critical path.  In addition, a project owner that fails to implement or require a safety protocol for protection of all project personnel from the coronavirus cannot usually credibly prove it was really the contractors who caused an outbreak and indefinitely shut down the project.

These commonsense principles governing delay claims equally depend upon comprehensive and timely documentation of the delay.  Written correspondence confirming delay causes and consequences should be contemporaneous and immediate.  Delay documentation should also be sufficiently detailed and timely to put key players on notice that the delay will impact the critical path, further citing specific contractual provisions that trigger available remedies for the delays.  Conversely, after-the-fact and imprecise documentation of the delay carries little weight with judges, juries, and arbitrators and tends to suggest that the delay is neither material nor actionable.  Proving a material and actionable delay, therefore, usually requires favorable contractual terms, critical path impact, favorable law, and believable documentation demonstrating timely notice and no fault for the delay.

If one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance dispute – please call Advise & Consult, Inc. at 888.684.8305.

Ready, Fire, Aim: The Importance of Targeting Your Delay Notices

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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. 

Conclusion 

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.  

Defects, Delays and Change Orders

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Jacob A. Epstein | Construction Executive

As every construction professional is aware, unexpected events and problems are guaranteed on every large project. Defects, delays and change orders are sure to arise, and depending on how they are dealt with and addressed at the time, they can either have minimal effects on the overall project or they can have drastic, long-term and often costly effects, including but not limited to thousands of dollars in legal fees, increases in insurance premiums and/or years of litigation down the road. 

There are many reasons why so many large construction projects end up in some type of litigation. Delay claims, construction contract disputes and construction defect lawsuits are so prevalent in certain parts of the country that certain judges designate specific time blocks in their courtrooms for construction cases only—just to deal with the large portions of their case dockets dealing with construction issues at the same time. 

DEFECTS

If a defect is identified during a project, it is important to have a clear record of what actions were taken to address the specific, defective condition. If a defect is identified, but it is not remedied during construction, the contractor should not be surprised if it is sued for a construction defect down the road. It does not help anyone to simply identify the issue and fail to make sure that it gets fixed. 

All parties should endeavor to have a clear record of what the condition is, who is responsible for the condition, who is responsible for fixing it, whether and how the condition was fixed and whether an inspector or design professional signed off, inspected and approved the specific repair. This can be done via a request for information, inspection reports or any other manner of written documentation. Without such specificity and a clear documentary record, everyone who touched the issue (whether it’s the contractor, subcontractor, engineer, consultant, inspector, etc.) could potentially be the subject of a construction defect claim by the owner or a by a future owner. The procedure for identifying and addressing construction defects can be memorialized in a construction contract, with clear procedures as to who is responsible for identifying same and how they are to be dealt with. 

DELAYS

If it is not clear in a construction contract how delays are dealt with, how delay damages are calculated and who is responsible for certain types of delays, it will almost surely lead to a delay claim and, very often, the resulting withholding of payment by the owner or client. One way to avoid this is to ensure that the construction contract has clear and unambiguous delay provision language, including clear “force majeure” language, setting forth precisely what types of delays are outside of the contractor’s control so there can be no dispute in the event same arises. 

Similarly, there should be clear language setting forth the owner’s and design professional’s responsibilities, including for example, how much time it should take for an owner or design professional to respond to a change order request, request for information or product submittal. If everyone on the project has clear deadlines for specific tasks, it will minimize the risk of a dispute down the road. 

Without these types of safeguards built into a project, the parties risk having to argue and litigate a delay claim, which often necessitates the retention of expensive expert witnesses. These expert witnesses have to evaluate the project’s critical path and review all of the project documents and communications in order to make a determination as who they believe is responsible for each specific delay event, and how each delay event affected the critical path. 

CHANGE ORDERS

Whether it is a defect (that could be the cause of a delay) or some other unforeseen issue, change orders will likely be required for any large construction project to alter deadlines or amounts owed to the contractor. The details in every change order are extremely important, and without a clear record of what was included in the specific change order, a dispute (and more specifically, a payment dispute) is more likely to arise. 

For example, if an additional scope of work is being added to an already existing contract, the change order should specifically identify the materials, the cost of the materials, the labor and the cost of labor, as well as any overhead, permitting, insurance or other costs. Without that clear record, a client or owner could potentially argue down the line that it was not clear what they were signing for. The more detail and information built into the change order, the better it is for all parties involved so it is extremely clear what scope of work is being performed, what charges from the contract are being added or deducted (in the case of a credit or deduction), and why the change order was necessary in the first place.

Defects, delays and change orders are inevitable in the construction industry. Depending on how they are anticipated and handled, the ripple effects could be long-term and extremely expensive.

No Damage for Delay? No Problem: Exceptions to the Enforceability of No Damage for Delay Clauses

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Chris Broughton | ConsensusDocs

Introduction:

Under a no-damage-for-delay clause, the owner is not liable for any monetary damages resulting from delays on the project. In lieu of monetary recovery, the contractor’s remaining remedy is a non-compensatory time extension. These clauses are common at the contractor-subcontractor interface as well.

While no-damage-for-delay clauses are enforced in most jurisdictions, some states, either by statute or case law, have limited the enforceability of no-damage-for-delay clauses. Other states have also limited the enforceability of these clauses on state government contracts, and a select few have outlawed them on all projects regardless if they are publicly or privately owned. Additionally, for subcontractors on federal projects, the Miller Act may provide a way to avoid no-damage-for-delay and recover against the general contractor’s payment bond.

This article provides an overview of no-damage-for-delay clauses and the exceptions to enforcement of these clauses. However, due to the consequences of a no-damage-for-delay clause, it is important to know the terms of your contract and the law that governs your project.

Sample No-Damage-for-Delay Clause:

As noted above, an owner or contractor may attempt to prospectively allocate the risk and shift financial responsibility for delay through a no-damage-for-delay clause in the contract.

The ConsensusDocs standard prime and subcontracts do not include a no-damage-for-delay clause. Nevertheless, an example of a no-damage-for-delay clause is as follows:

Contractor agrees that it shall make no claims against Owner for damages, charges, interest, additional costs or fees incurred by reason of delays or suspension of work caused by the Owner, other parties under the Owner’s control, or any other cause in the performance of its work under this Agreement. Contractor’s sole and exclusive remedy for delays, stoppage, or suspension of the work is an extension of time equal to the duration of the delay, stoppage, or suspension to allow the Contractor to complete its work under this Agreement.

A no-damage-for-delay clause like the sample above will likely be enforced in most states. However, as shown below, there are important exceptions that can impact your ability to recover your on project.

Frequently Recognized Exceptions to No Damage for Delay:

While most states will enforce a no-damage-for-delay clause on a construction contract, there are important exceptions that have been developed through the court decisions that can impact your ability to recover your delay costs. Nevertheless, the following are the most common exceptions to a no-damages-for-delay clause:

1.Delays that resulted from the benefiting party’s bad faith, active interference, fraud or misrepresentation. This is the most widely adopted exception to no-damage-for-delay clauses. Courts will not allow a party to benefit from its own fraud, misrepresentation, bad faith, or active interference with the work of the other contracting party. Aside from invalidating a no-damage-for-delay clause, fraud, misrepresentation, bad faith may also give rise to a breach of a party’s implied duty of good faith and fair dealing.[ii] Additionally, other jurisdictions may include gross negligence under this exception as well.[iii]

2. Delays that were of a kind or type not contemplated by the parties. Some jurisdictions have held that no-damage-for-delay clauses will not bar claims resulting from delays that were not reasonably foreseeable or contemplated by the parties at the time contract. The New York Court of Appeals stated that even broadly written no-damage-for-delay clauses will encompass only delays “which are reasonably foreseeable, arise from the contractor’s work during performance, or which are mentioned in the contract.”[iv] An example of a delay “not contemplated by the parties” is an indefinite suspension of the work after an unknown methane gas condition was discovered on site.[v] However, it is important to note that there are many jurisdictions that do not recognize this exception. [vi]

3.Delays that were so unreasonable that they constituted an intentional abandonment of the contract by the benefiting party. A no-damage-for-delay clause will not be enforced where the party benefiting from the clause abandons its contractual obligations. A party’s abandonment can be express or inferred from the benefiting party’s conduct and attendant circumstances surrounding performance. Importantly, abandonment can be inferred where the delays are so “unreasonable in length or duration that they amount to an abandonment of the contract.”[vii] For example, a court found intentional abandonment where the owner issued significant design changes that fundamentally altered the work and delayed the project by over two years. [viii]

4. Delays resulting from a fundamental breach of contract by the benefiting party. While recognized in many jurisdictions, the exception for material breach is less frequently applied because the no-damage-for-delay clause is intended to encompass “garden-variety” delays such as failing to timely provide materials. [ix] To qualify as a “fundamental breach,” the actions of the benefiting party must be a “complete failure of a condition precedent to performance” or “completely frustrate the performance of one of the parties, not merely delay it for a time.” [x]

The cases and examples are discussed above to provide a general overview of the most commonly applied exceptions to no-damage-for-delay clauses. This is not exhaustive, and other states may recognize their own exceptions to no-damage-for-delay. Thus, it is important to understand which exceptions apply and how they are applied under the law that governs your contract.


Additional State Statute Exceptions

In addition to the exceptions listed above, many states have enacted statutes that further limit or prohibit the enforceability of no-damage-for-delay clauses.

Public Contracts

In particular, some states have enacted limitations or exceptions on no-damage-for-delay on state government contracts, where the clause would absolve the government entity of any monetary liability for delays. For example, in Louisiana, no-damage-for-delay clauses are void on public projects if it “purports to waive, release, or extinguish the rights of a contractor to recover… for delays in performing such contract, if such delay is caused, in whole or in part, by acts or omissions within the control of the contracting public entity.” [xi] Virginia’s and Colorado’s statutes prohibiting no-damage-for-delay clauses on contracts between the public entity and contractor have similar language as well. [xii] North Carolina also prohibits no-damage-for-delay clauses on public contracts between the government owner and the prime contractor. [xiii]

Public and Private Contracts

Furthermore, there are a select few states, notably Kentucky, Ohio, and Washington, which go one step further and prohibit no-damage-for-delay clauses on both public and private projects. [xiv] For reference, here is the operative language in Washington’s statute prohibiting no-damage-for-delay clauses:

Any clause in a construction contract, as defined in RCW 4.24.370, which purports to waive, release or extinguish the rights of a contractor, subcontractor, or supplier to damages or an equitable adjustment arising out of unreasonably delay in performance which delay is caused by the acts or omissions of the contractee or persons acting for the contractee is against public policy and is void and unenforceable. [xv]

Federal Contracts and the Miller Act

On federal procurement projects, the standard contract provisions in the Federal Acquisition Regulations (“FAR”) allow the general contractor to recover for the government’s delay. [xvi] Contrarily, absent requirements for subcontractor compliance, directives, provisions flowed down from the FAR, and other exceptions, subcontracts on federal projects are largely governed by state law. Thus, state law will determine whether a no-damages-for-delay clause is enforceable, and if so, what exceptions will apply for subcontractors on federal government projects. However, there are important protections, including the Miller Act, which may prevent enforcement of a no-damage-for-delay clause against a subcontractor in certain circumstances – particularly where the subcontractor asserts a claim against the general contractor’s payment bond and the no-damage-for-delay clause includes conditional payment or recovery language.

The Miller Act provides an alternate route for recovery for subcontractors on federal construction projects when they are not paid in full by the general contractor. Under the Miller Act, general contractors on federal government projects are required to procure a payment bond for those who provide labor or furnish materials on government contracts valued at over $100,000. [xvii] The Miller Act’s purpose is remedial: to guarantee payment and provide an alternate route of recovery in lieu of the mechanic’s lien right that would exist under state law.

The Miller Act may prevent enforcement of a no-damage-for-delay clause against a subcontractor’s claim against the general contractor’s payment bond if the clause includes conditional payment or recovery language. For example, in United States ex rel. Kitchens To Go v. John C. Grimberg Co., Inc., 283 F.Supp.3d 476 (E.D. Va. 2017), the surety could not assert the no-damage-for-delay provision in the contract to prevent the subcontractor’s recovery of its delay damages against the payment bond because the clause at issue conflicted with the Miller Act. The subcontract’s no-damage-for-delay clause stated that the general contractor would not be liable for any delays on the project beyond its control. Furthermore, the no-damage-for-delay clause included language, similar to a pay-if-paid clause, which conditioned the subcontractor’s recovery for any delay costs on the general contractor’s reimbursement for delay from the federal government. [xx]

The no-damage-for-delay clause violated the Miller Act because a subcontractor’s claim against the payment bond cannot be conditioned on whether the government has paid its general contractor. The court noted that to condition the subcontractor’s recovery on the general contractor’s reimbursement from the federal government would frustrate the Miller Act’s purpose: to guarantee payment for those who perform labor or furnish materials on federal projects.

Additionally, the clause did not operate as a waiver of the subcontractor’s Miller Act claim because it was executed before the subcontractor performed on the project. The Miller Act allows a party to waive its right to recover against the bond if the waiver is “(1) in writing; (2) signed by the person whose right is waived; and (3) executed after the person whose right is waived has furnished labor or material for use in the performance of the contract.” In this case, the subcontract, which included the no-damage-for-delay clause, was executed well before the subcontractor started its performance on the project. Thus, the no-damage-for-delay clause did not operate as a waiver of its payment bond claim under the Miller Act.

Again, it is important to note that this decision is very specific to the language in the subcontract and the facts of this case. Thus, subcontractors should look to their contract to determine whether the Miller Act will prevent enforcement of the no-damage-for-delay clause against their payment bond claim.

Conclusion

Owners and general contractors may prospectively allocate responsibility and liability for project delays to the other contracting party through a no-damage-for-delay clause. While these clauses are generally enforceable in most jurisdictions, some states, either through case law or statute, have developed important exceptions to the enforceability of no-damage-for-delay clauses, and a select few prohibit these contracts on all public and private projects. Additionally, for subcontractors on federal projects, the Miller Act may prevent enforcement of a no-damage-for-delay clause in certain circumstances – particularly where the subcontractor attempts to recover against the general contractor’s payment bond and the clause includes conditional payment or recovery language. Thus, due to the consequences of a no-damage-for-delay clause, it is important to know the terms of your contract and the law that governs your contract.

Every two-front war cannot be avoided every time.  But there are certainly practical ways to reduce and minimize this risk.  And adopting some of these approaches can help you avoid a classic blunder (that did not quite make Vizzini’s list).

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See, e.g. J.A. Jones Constr. Co. v. Lehrer McGovern Bovis, Inc., 89 P.3d 1009, 1015 (Nev. 2004); Phoenix Contractors, Inc. v. General Motors Corp., 135 Mich. App. 787, 792 (Mich. App. 1995); White Oak Corp. v. Dep’t of Transp., 585 A.2d 1199, 1203 (Conn. 1991); Dickinson Co., Inc. v. Iowa State Dept. of Transp., 300 N.W.2d 112, 114 (Iowa 1981); W. Eng’rs, Inc. v. State By and Through Rd. Comm’n, 437 P.2d 216, 217 (Utah 1968).
United States ex rel. Williams Elec. Co. v. Metric Constructors, 325 S.C. 129, 134 (S.C. 1997).
John E. Gregory & Son, Inc. v. A Guenther & Sons Co., 147 Wis.2d 298, 304 (Wis. 1988).
Corrino Civetta Constr. Corp. v. New York, 67 N.Y.2d 297, 310 (N.Y. 1986).
See Honeywell, Inc. v. J.P. Maguire Co., 1999 U.S. Dist. LEXIS 1872, at *69 (S.D.N.Y. Feb. 22, 1999).
See U.S. ex rel. Williams Elec. Co., 325 S.C. at 135.
Id. at 134.
See Bovis Lend Lease LMB, Inc. v. GCT Venture, Inc., 6 A.D.3d 228, 229 (N.Y. App. Div. 1st Dep’t, 2004).
Corrino Civetta Constr. Corp., 67 N.Y.2d at 313.
Magco Elec. Contrs., Inc. v. Turner Constr. Co., 2009 U.S. Dist. LEXIS 24499, at *26 (D. Conn. March 26, 2009).
La. R.S. 38:2216(H).
Va. Code. Ann. § 2.2-4335(A); Colo. Rev. Stat. § 24-91-103.5.
N.C. Gen. Stat. § 143-134.
See Ohio Rev. Code. § 4113.62(C); Wash. Rev. Code. § 4.24.360; Ky. Rev. Stat. Ann. § 371.405(2)(c)
Wash. Rev. Code. § 4.24.360
See FAR 52.242-14 (Suspension of Work); FAR 52.242-15 (Stop-Work Order).
40 U.S.C. § 3131 et. seq.
United States ex rel. Kitchens To Go v. John C. Grimberg Co., 283 F.Supp.3d 476, 481-84 (E.D.Va. 2017).
40 U.S.C. § 3133(c).
U.S. ex rel. Kitchens To Go, 283 F.Supp.3d at 483.

Who Owns the Project’s ‘Float,’ and What Should Be Done About It?

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David A. Cox | Stoel Rives

The coined phrase “time is money” especially applies in the construction industry. Construction participants go to great lengths to build their projects on time and avoid delay costs. To facilitate timely project completion, construction schedulers create sophisticated project schedules utilizing the critical path method (CPM).

CPM scheduling identifies the project’s construction activities, organizes them into a logical sequence, and assigns each activity a duration – the designated time for completion. CPM scheduling also identifies which construction activities are “critical” and “noncritical.”

For the purposes of this article, critical activities are those construction activities that must be completed on time or else the entire project will be delayed accordingly. On the contrary, noncritical activities are those that contain “float,” or the extra time that is allotted to complete an activity in addition to the designated duration. For any given construction project, there are various activities on which the project completion date does not depend and therefore may contain float.

Unsurprisingly, construction projects are complex and often experience delays. The party responsible for a delay subjects itself to potentially severe consequences. Some of the ways a project owner can cause a delay are by issuing excessive project changes, failing to respond to contractors’ notices, interfering with contractors’ work, and failing to perform its contractual duties according to schedule – such as making progress payments, and reviewing and approving construction documents, etc. Owner-caused delays potentially equate to increased contractor costs, equipment costs, managerial costs, lost profits, etc.

A contractor can cause a delay by failing to timely perform its work. This can include inefficiencies and loss of productivity, failure to hire sufficient and skilled labor, delayed supply deliveries, scheduling errors, and corrections of construction defects, etc. Contractor-caused delays potentially equate to increased equipment rental costs, labor costs, insurance costs, liquidated damages, etc.

When project delays occur, the owner and contractor each want to “own” the project float to be able to apply the extra time available in the project schedule toward their own delays, thereby avoiding delay consequences and potential liability. In other words, if the contractor owns the float, then the contractor may apply the float to mitigate or eliminate the impact of contractor-responsible delays and the float would be unavailable to the owner to mitigate any owner-caused delays. The inverse would also apply.

The “float” dilemma begs the question: who owns the float?

In the beginning stages of float allocation cases, courts simplistically and generally held that the contractor owned the float. Unfortunately, the early case decisions regarding float allocation provided little analysis behind the courts’ reasoning. Yet, with the increased usage of CPM scheduling in recent decades, courts grew more comfortable with CPM analysis and their decision-making regarding float allocation became increasingly sophisticated.

Accordingly, instead of mechanically allocating the float to the contractor, courts and boards began analyzing the relevant project delay holistically and whether the relevant delay consumed a project’s entire available float, regardless of the party causing the delay. If there was available float in the project to absorb the delay’s impact, then the party causing the delay was allowed to apply the float and mitigate the delay. This holistic approach gave way to the general and current rule that the “project owns the float.” Accordingly, and absent an agreement otherwise, courts now generally hold that a construction schedule’s float is available to the party who “uses” it first, or in other words, on a “first come, first served” basis.

A construction project’s float therefore holds tremendous value to a party’s potential delay liability. Consequently, owners and contractors often negotiate for float-sharing or float-allocating clauses in their contracts. As its name implies, a float-sharing clause generally provides that the project’s float is explicitly owned by the project and is available to any party who may need it to reduce delays to project completion or any other enforceable sharing arrangement. A float-allocating clause generally provides that the project’s float is owned by the owner (or contractor) and that the contractor (or owner) or any other party is not entitled to any adjustment to the project completion date or compensation because of the loss or use of project float.

While a float-sharing or float-allocating contract clause can take various forms, the takeaway is that owners and contractors should carefully understand the impacts float may have on a project and negotiate and contract accordingly. Absent a float-sharing or float-allocating clause in a construction contract, the modern trend is that the “project owns the float.”