Although roofing contractors are not as frequently involved in lawsuits arising from construction delays as mechanical, electrical, plumbing and general contractors, you should be familiar with the basic construction law principles applicable to delays.
At some point, you will have a job where an owner or general contractor withholds payment from you based on a claim that you are liable for either liquidated or actual delay damages because you did not complete your work per the contract or construction schedule. Alternatively, you may suffer delays that make your performance more costly and require more time for you to complete your work.
Construction contracts typically include a "time is of the essence" clause. This seemingly innocuous clause can have substantial financial implications. When a contract includes a time is of the essence clause, failure to satisfy a contract requirement pertaining to time is considered a material breach of the contract. Conversely, most courts will not consider timing as critical if the contract does not contain a sentence stating time is of the essence.
If your project manager is not vigilant and fails to take steps when delays occur, you could find yourself facing liability for delays that may not have been your fault, being denied a time extension or not being able to recover extra expenses.
Excusable delays
Construction projects suffer delays for a variety of reasons. From a legal perspective, construction delays generally are classified as either excusable or nonexcusable and compensable or noncompensable.
Excusable delays entitle a contractor to a time extension and possible additional compensation. For a delay to be classified as excusable, the delay must not be the contractor's fault or a result of a condition for which the contractor agreed in the construction contract to accept responsibility.
Excusable delays are caused by another party's actions or omissions or arise from unforeseen events beyond the contractor's control or fault. Delays resulting from architectural design errors and owner-initiated changes are common excusable delays. Unusually severe weather also is grounds for an excusable delay. However, snow, rain or other unfavorable weather conditions adversely affecting execution of the work do not entitle a contractor to additional time unless the incidence of unfavorable weather exceeded historical norms based on reliable weather records for the area.
Nonexcusable delays are caused by the contractor or arise from risks and responsibilities the contactor accepted when signing the construction contract. Failure to manage a job properly, staff a job adequately or have the right equipment at the job when needed are examples of nonexcusable delays. Late material deliveries that could have been avoided or should have been anticipated is another example. However, if a material delivery was delayed because of an unforeseen event, such as an explosion at the plant where the material is produced, the delay may be considered excusable.
The construction contract will be examined when determining whether a delay is excusable. The American Institute of Architects' (AIA's) General Conditions, AIA Document A201-2007, states contract time shall be extended by change order for a reasonable time if a contractor is delayed by the following:
In contrast to AIA's listing of excusable delays, subcontracts drafted by general contractors typically take a much more restrictive approach, stating, for instance, a labor dispute is not grounds for an excusable delay.
Compensable delays
A compensable delay results from a cause that entitles the contractor to additional compensation to cover extra costs the contractor incurred as a result of the delay. Excusable delays may be compensable or noncompensable depending on the delay's cause and contract terms.
Compensable delays occur when another party's conduct causes a contractor to be delayed and incur extra expenses that would not have occurred otherwise. Failure to provide the contractor with site access as scheduled, design errors, failure of other parties to perform necessary predecessor work in a timely manner and late material delivery are examples of compensable delays.
Damages a contractor may recover following a compensable delay include the costs incurred by the contractor for contract performance extending beyond the contractually contemplated completion date, typically general conditions costs.
For example, if you rent a piece of equipment, the additional rental costs during the period of extended performance could be recovered as a delay damage. Even if you own the equipment, the customary rental price frequently is used to measure delay damages. Extended supervision and site overhead expenses also may be recovered as delay damages.
Delays caused by extraordinary weather and force majeure events (which include acts of God such as tornadoes, earthquakes and floods) commonly are excusable but noncompensatory because they are related to causes beyond the control or without fault of either party. Again, the contract will be examined to determine whether a delay is compensable.
The financial effect of a delay depends on the timeliness of the contractor's performance, causes of delay, contract provisions and the contractor's management of the delay. A delayed construction project likely will lead to losses, claims and back charges that can devastate a job's profitability. A contractor does not want to face liability exposure resulting from not meeting a contractually stipulated completion date or not being able to recover delay damages when the delay was not caused by the contractor.
To avoid being in this position, you need to be alert and proactive when caught in a job ensnarled by delays and competing claims. You should be able to recover delay damages or, at the very least, obtain a time extension when you have been delayed because of others, and you should not be liable for delay damages if the delay and damages claimed by another party were not your fault.
Obviously, your performance while executing work is the most important factor when determining potential liability or ability to recover for delay damages, but there are other factors that affect your financial outcome.
Contract terms and actions
Being alert and proactive starts with negotiating contract terms. General contractors routinely demand complete control of the construction schedule, including the right to change the schedule. But a general contractor's schedule may not allow sufficient time to perform your work, particularly if the schedule is compressed because of late precedent work or you encounter weather conditions not conducive to roofing work or other delays that make it difficult, if not impossible, for you to meet a pre-established construction deadline.
Before signing a construction contract, become familiar with the existing construction schedule and contract provisions pertaining to the schedule and delays. Is the proposed schedule realistic? Can the general contractor unilaterally bind you to a revised schedule that reduces the time you have to complete your work or to reschedule your work so you will encounter less favorable weather conditions? Is your liability for delay limited to delays that are your fault? How are delay damages calculated? Can you recover if you are delayed?
To provide some legal protection, insert in every construction contract the number of days with conditions suitable for roofing work you will be allotted to obtain substantial completion of your work. Take a conservative approach when inserting the number of work days you will have to perform the job so that, by contract, you are afforded sufficient time regardless of schedule changes the general contractor may make.
You also should review the contract terms that determine whether a delay will be excusable and compensable. Contract provisions that can make you liable for a missed deadline that is not your fault should be revised. For instance, if a contract requires you to complete work by a certain date or within a certain number of days from issuance of a notice to proceed, you should add the phrase "weather permitting" and insert a date the roof deck is to be completed so you can proceed with roof system installation.
Notice requirements
Construction contracts invariably contain provisions requiring written notice be given within a certain number of days if a contractor wants to make a claim for additional time or compensation because of a delay. Make sure you review those provisions before you sign a contract.
If the period is unreasonably short (such as requiring written notice 24 hours after a delay occurs), revise the time period in the contract and change the start date to the day you discover the delay rather than the date of the occurrence that caused the delay. Your project manager should conspicuously post the time and other notice requirements with other key information concerning the job, so if your work is delayed, your project manager is more likely to be aware of and satisfy the contractual notice requirements when a delay occurs.
Giving written notice is critical to obtaining additional compensation and/or time. Failure to comply with a contractual notification provision can cause a valid, substantial delay claim to be lost without substantive consideration or a contractor to be liable for delay damages when an extension of time would have been granted had proper notice been given.
Do not wait until you are trying to obtain final payment to become familiar with contract notice requirements and the general contractor or owner is assessing delay damages. Your project manager needs to be alert to delays and actively monitor and manage the job to identify and give notice of delays affecting the start or execution of your work.
Whenever a work delay is beyond your control, written notice of the delay should be given promptly and documentation subsequently made regarding the time and financial impact of the delay. When working as a subcontractor, you also will need to be familiar with the notice requirements in the prime contract because you will be required to give written notice to the general contractor of a delay for which the owner is responsible in time for the general contractor to give timely notice to the owner.
Contractors regularly execute change orders providing for additional compensation when asked to perform additional work, but all too often they fail to even request additional time. The cumulative effect of conscientiously and regularly requesting time extensions whenever your work is delayed or you are asked to perform additional or changed work may mean the difference between facing liability for delay and not having (or at least having less) liability for liquidated or other delay damages.
Right to recover delay damages
All contracts have an implied warranty that requires both parties to act in good faith. This implied warranty requires that neither party delay nor hinder the other party's timely performance. In the absence of a contractual provision governing delay damages, a contractor is entitled to recover damages for additional expenses resulting from a delay caused by the owner or for which the owner is responsible. Similarly, a subcontractor is entitled to recover damages incurred because of a delay caused by the general contractor or for which the general contractor is responsible.
For instance, let's assume a roof system installation for a new construction project is delayed because the roof system specifications prepared by an architect were defective and caused a delay that resulted in you having to pay higher wage rates than would have been paid had the job proceeded as scheduled. Barring other contract provisions affecting the rights of the parties, you would be entitled to recover damages and the general contractor would, in turn, be able to recover from the owner the additional amounts owed to you.
Documentation is critical to avoid incurring liability for delay damages and being able to recover delay damages. You must be able to prove your work was delayed by an act for which you were not responsible and that you are entitled to additional time and compensation. You will need to document the delay's duration and damages.
If you are not granted a justified time extension and are required to work overtime or add manpower and equipment that would not have been needed otherwise, you may be entitled to assert a constructive acceleration claim. Constructive acceleration occurs when a contractor is required to compress the time of performance because of a delay for which the contractor is not responsible to complete the job by the contract completion date.
Liquidated damages
Liquidated damage clauses often are included in prime construction contracts and incorporated into subcontracts through flow-down clauses, which make provisions in the prime contract part of the subcontract. Liquidated damage clauses, most commonly stated as a dollar sum assessed on a per diem basis, generally are enforceable as long as the stipulated liquidated damages were a reasonable estimate of anticipated actual damages at the time the contract was consummated and actual damages are difficult to quantify. (For more information, see "Are liquidated damages enforceable?", October 2004 issue, page 14.)
Because damages resulting from a construction delay are difficult to quantify, liquidated damage provisions commonly are included in construction contracts as the measure of damages if construction is not completed within the contractually required duration. However, if a liquidated damage provision was unreasonable at the time it was drafted and was intended as a penalty, the clause will not be enforced.
Because liquidated damages are intended as a substitute for actual damages, some contract provisions purporting to allow for recovery of actual and liquidated damages resulting from delay are unenforceable because they would indicate the liquidated damage clause was intended as a penalty and would allow for an impermissible double recovery. Similarly, a contract clause giving a party the option to invoke liquidated damages also likely would be rejected when subject to judicial review because it would serve as a penalty when the party could have quantified actual damages and chosen to invoke the liquidated damages clause to obtain a larger recovery.
Although contractors generally dread a liquidated damage clause, the clause serves the bona fide purpose of making the financial consequences of not meeting a contractual deadline known to both parties at the job's outset. For the party facing a liquidated damage claim, the clause caps liability for delay damages and avoids the uncertainty of an unknown, potentially large claim for actual damages. For the party seeking recovery, the clause avoids the difficulty, uncertainty and costs of trying to prove actual damages.
No damage for delay clauses
Construction contracts frequently contain "no damage for delay" clauses, making a time extension the contractor's sole remedy in the event of delay regardless of cause. Unlike standard AIA construction contract documents, general contractor-drafted subcontracts routinely include no damage for delay clauses, intended to shield the general contractor from subcontractor-initiated delay claims even though there may be no such provision in the prime contract and the subcontract makes the subcontractor liable for delay damages.
If the general contractor's contract with the owner includes a no damage for delay clause, a parallel provision in the subcontract is justifiable with regard to delays outside the general contractor's control. However, if the prime contract does not include a no damage for delay clause, there is scant justification for the general contract to include such a provision in the subcontract. If the subcontractor is liable for delay damages, the subcontractor should be entitled to recover delay damages if the subcontractor suffers a compensable delay.
A no damage for delay clause is a risk-shifting provision that can have severe financial consequences. It shifts the risk of additional expenses because of a delay to a party who is barred contractually from obtaining compensation to recover additional expenses. If a no damage for delay clause is coupled with a liquidated damages clause, the contractor or subcontractor who is subject to both could be in the perilous position of not being able to recover additional expenses caused by a delay and being liable to pay damages as a result of work not being completed by the contract deadline.
Courts' exceptions
Courts have developed exceptions to no damage for delay clauses, and some states have enacted statutes making no damage for delay clauses unenforceable in certain situations. Although each state has developed laws relating to no damage for delay clauses, commonly accepted exceptions are:
The primary legal rationale for not enforcing a no damage for delay clause goes back to the implied duty that the contracting parties act in good faith and deal fairly with each other, which includes an implied obligation to avoid interfering with the efforts of other parties in the performance of their contractual obligations.
Several states have enacted statutes, particularly for public contracts, that void or limit the application of no damage for delay clauses. Arizona, California, Colorado, Kansas, Minnesota, Missouri, New Jersey, North Carolina, Oregon and Virginia have statutes prohibiting public entities from using no damage for delay clauses to shield the public entity from claims for delay damages. In some of these states, the prohibition against no damage for delay clauses in public works contracts is unconditional; in others, the proscription is limited to situations where the delay is unreasonable and not within the contemplation of the parties.
Statutes in Colorado, Minnesota, Missouri and New Jersey void any clause in a public works contract that purports to limit a contractor's right to seek recovery for delay damages caused by a public entity. Arizona requires a construction contract between a state government unit and contractor to allow negotiation of delay damages incurred by the contractor for a delay caused by the state that was unreasonable and not within the contemplation of the parties. Similarly, California requires public contracts providing a time extension as the sole remedy for delay shall not prevent recovery of damages when a delay was unreasonable and not within the contemplation of the parties. North Carolina states any provision in a public construction project forbidding or limiting compensable damages for delays caused solely by the owner is unenforceable.
No damage for delay clauses in private and public construction contracts are unenforceable in Kansas, Kentucky, Ohio and Washington and extend to subcontractors. In Kansas, any contract provision that purports to waive a party's rights to collect damages for delays caused by another party shall be void, unenforceable and against public policy.
Ohio also provides that any clause in a construction contract that waives or precludes liability for delay during the course of a construction contract when the delay is caused by the owner or contractor is void and unenforceable.
And the Washington statute applies to all parties in the construction chain; it states any clause in a construction contract that purports to waive, release or extinguish the rights of a contractor, subcontractor or supplier to damages arising out of an unreasonable delay in performance caused by the contractee or its agents is against public policy, void and unenforceable.
Concurrent delays
Determining who is entitled to recover delay damages, how much additional time should be granted and the amount of delay damages is difficult when a delay is a result of multiple causes. Some delays may be excusable, and some may not; some may be compensable and others not. Delays by different parties may offset each other, so a liquidated damages claim asserted by an owner may be negated or offset by a delay for which the owner was responsible. A delay that did not cause the job completion date to be extended or construction to be accelerated will not entitle the general contractor to recover delay damages for extended general conditions.
Concurrent delay occurs when both or multiple parties have delayed or hindered contract performance at the same time, causing a delay in the project's completion date. If an owner-caused delay and a contractor-caused delay affect the same activity at the same time and the owner-caused delay and the contractor-caused delay would each have delayed the project's completion date, the delays are said to be concurrent. With concurrent delays, it can be difficult to determine the contractor's entitlement to a time extension and recovery of extended duration costs and the owner's recovery of actual delay or liquidated damages.
Most court cases addressing concurrent delays arise from government contracts where the completion date of a public project has been delayed; the government is seeking to assess liquidated damages; and the prime contractor is seeking to offset the liquidated damages and recover delay damages based on an alleged delay for which the government is responsible.
The courts' approach used to be that when there were concurrent delays, the contract performance date would be extended but neither party could recover additional compensation from the other. If the owner contributed to the delay, the owner could not recover liquidated damages and the liquidated damages provision would be abrogated even if the contractor also caused the delay. Similarly, the contractor could not recover if the contractor had some responsibility for the delay. The "time but no money" rule led to harsh results in cases where the delays were clearly disproportionate to each other.
But for some years, the trend has been in favor of apportioning damages when there are concurrent delays. The modern rule of apportionment is damages should be apportioned unless the causes and effects of the delays caused by each party are so intertwined apportionment is not feasible. If evidence presented permits segregation of costs, delay damages will be apportioned so the owner might be entitled to recover some liquidated damages and the contractor is entitled to additional time and additional compensation based on the owner-caused delays.
Based on the evidence, delay duration and resulting damages, courts will determine the amount of fault attributable to each party and make an award. Liquidated damages may be assessed when it is reasonably possible to apportion the delays among the various causes even though there are concurrent causes attributable to both parties. If the contractor-caused delay exceeded the delay caused by the owner, the owner will be able to recover some liquidated damages. When delays result from a combination of causes and both parties are at fault to such extent it is impossible to determine the degree of fault of each and apportion damages, the "time but no money" rule is likely to be applied.
Construction disputes involving concurrent delays can become a battle of scheduling experts. If you seek to recover or avoid imposition of delay damages when the contractual completion deadline was missed, you will in all likelihood need to retain a scheduling expert and rely on a critical path method (CPM) analysis.
CPM scheduling uses a computer program that plots the sequences and interdependencies of a project's significant activities and will indicate the most logical sequence of activities. It provides an analytical tool to apportion delay responsibility and allocate delay damages when there are concurrent delays. The sequential order of tasks that consumes the most time determines the critical path. Delay of any task on the critical path delays all tasks that follow.
Other tasks that are necessary to the project but typically would not affect the completion date can be delayed without affecting the critical path. When evaluating the effect of delays, the scheduling expert will analyze the originally planned construction schedule, revised schedules developed during the course of the job and an as-built schedule.
Know your options
When planning for and performing a construction project, be cognizant of the potential financial effects of construction delays and take steps to protect yourself, starting with a thorough review of the proposed contract. You should be sure the contract allows you sufficient time to complete your work and does not include provisions that expose you to liquidated or actual delay damages if you are delayed or unable to complete your work because of factors beyond your control.
During a project, be sure you are alert to any conditions, events or extra work that delay your work or cause your work to take longer than originally anticipated. Even if your contract contains a no damage for delay provision, you need to be sure you provide timely written notice of any delays affecting your work and request additional time if necessary.
By becoming familiar with the concepts of excusable and compensable delays and being delay-conscious and proactive during the course of a job, you can more easily avoid liability or recover damages when your work is delayed by others.
Stephen M. Phillips is a partner with Atlanta-based law firm Hendrick, Phillips, Salzman & Flatt.
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