When is a Project Delay Material and Actionable?

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.

Change Orders During the COVID-19 Pandemic — Managing Unexpected Construction Costs and Time Overruns

Elizabeth Charnowski and Carl Pebworth | Faegre Drinker Biddle & Reath

The COVID-19 pandemic has caused cost overruns and project delays that construction owners and contractors could have never imagined before 2020. These unanticipated circumstances can create contract application and interpretation challenges for the unwary construction partner. For example, even if a prime contract expressly requires a specific notice period for change orders, parties can waive or circumvent these requirements in a range of ways. Now, more than ever, prudent construction partners must act carefully to avoid unforeseen impacts. That is especially true when project sites shut down due to executive orders and as work later restarts. Many contractors may now be seeking extra time or compensation for these project delays. How do prudent owners and contractors navigate these uncertain circumstances? Here are some considerations to bear in mind:

Orally Modifying Change Order Provisions

Parties can orally modify change order provisions by their conduct and actions. Absent a purposeful decision to do so, owners and their representatives should avoid orally “agreeing” to certain changes in meetings either informally via email or by their course of conduct. Even unconsidered actions can be interpreted by a court to be an implied equitable modification of the contract provision. Oral representations, even if contrary to terms of a contract, should be carefully made and can be considered a modification of the contract. Otherwise, an owner may have to pay a contractor or allow for a contract extension due to an untimely submitted change order. Careful construction partners should aim to confirm changes in cost or timing formally and in writing to avoid uncertainty.

Waiving Requirements in Change Order Provisions

Similarly, parties can waive the notice requirement for a change order through their actions and conduct. For example, if a contractor previously submitted a change order that an owner still executed even if it violated the notice provision, those actions waive notice timing requirements in a change order provision. Additionally, paying an invoice even though a formal change order was not timely submitted may waive these requirements. Even if an owner would be willing to execute a late-submitted change order, the owner should understand that this conduct could more generally waive notice requirements in the change order provision. All this is made further unclear because risks of the COVID-19 pandemic were, understandably, not considered in project pricing and scheduling and current understandings regarding pandemic impacts are widespread and ubiquitous.

Work Performed Under Emergency Circumstances

As an example of unforeseen exigencies, contractors may have performed emergency work because of project shutdowns created by executive orders. Courts may find that, although a formal change order was not timely submitted, the owner still must pay the contractor for that emergency work. Whether the work was an “emergency” remains a question of fact for a judge or jury. However, parties can avoid unnecessary and expensive disputes about cost or time overruns caused by emergency circumstances if the parties engage in ongoing close communication.

The COVID-19 pandemic brings unprecedented circumstances to construction project sites, as well as related cost and time overruns that parties must account and pay for. If successful construction partners make these decisions carefully, they can hope to avoid unpleasant surprises at the project’s end. Knowing when and how a clear project obligation can change before changes occur can save much cost and stress.