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Fundamentals of Construction Contracts: Scheduling and Delay Issues

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October 04, 2018
Author: Andrew J. Lonergan, PSP
Organization: Demand Construction Services, Inc


Properly utilized, project scheduling can be a very effective management tool. It can keep a project on tract, foster necessary communication, forecast problems, deal with delays and unforeseen events, control costs and enable timely project completion. Unfortunately, on some jobs, scheduling and delay issues can lead to serious and costly disputes. In the worst case, the schedule becomes so dysfunctional that it might be abandoned. Or, the Contractor keeps two sets of schedules; one to manage the project, and one to satisfy the demands of the Owner and Engineer.

The effective use of construction schedules requires a good knowledge of the fundamentals of contract scheduling requirements, the proper identification and treatment of delays, and the avoidance of inequitable contract language and the adopting of unsound positions. This section will present scheduling and delay issues, including some of the common types of problems which must be understood to successfully manage the time aspects of a construction project.

A. SCHEDULING REQUIREMENTS
Scheduling specification requirements run the gamut. They can be as simplistic as several sentences, which allow as little as a one page barchart; or they can be comprehensive, requiring a cost and resource loaded CPM schedule, multiple report printouts, a written narrative and frequent updating.

Owners and Engineers need to specify what they want to receive in the way of schedules and updates. The scheduling requirements of the contract should be tailored to the size, complexity and length of the project, as well as the sophistication of the contractors who will be expected to do the work. One size does not fit all! A simple barchart schedule may be entirely adequate for some projects. Complex multi-million dollar projects, spanning several years however, should take advantage of the speed and technology provided by sophisticated CPM scheduling software. Owners should realize that they will pay for the level of scheduling services which they require. On large complex projects, the additional cost of more extensive scheduling requirements will almost always result in savings of time and money.

Contractors need to read the scheduling specifications prior to bid so that an accurate price can be estimated for what has to be done. This may include placing a full time scheduling person on site, or hiring a scheduling consultant for assistance. It is very prudent to invest the time and effort to prepare a baseline schedule, which accurately reflects the estimate, bid planned construction sequence and productivity. It is wise to get input and concurrence from major subcontractors. The schedule can then be used as a management tool, to build the project as planned, and as the basis for proving delays and extra costs.

Listed below are some of the scheduling considerations which may be required on a construction project.
1. Type of schedule - barchart vs. computerized CPM schedule.
2. Is specific software required?
3. Must the Contractor provide a copy of the software to the Owner or Engineer?
4. Is the Schedule to be cost loaded?
5. Is the schedule to be resource loaded?
6. Is there a maximum length of activity restriction?
7. Is there a maximum or minimum number of activities required?
8. Will the schedule be used for payment purposes?
9. Is the schedule, and/or updates, required as a prerequisite for payment?
10. What is required to be submitted - for the original schedule and the updates?
a. Hard copy, electronic file or both
b. Schedule plots
- Size
- Number
- Format
- Information required
- Color vs. black and white
c. Reports
d. Narrative
e. Identification of changes to the accepted baseline schedule - logic, durations, etc.
f. Progress photos
g. Identification of delays
h. Actions to recover delays.
11. Are activities required to be coded for responsibility or by project area?
12. What is the required frequency of schedule updates? Monthly? Weekly?
13. Are short interval / two-week-look-ahead schedules required?
14. Are weekly or monthly scheduling meetings required? Who must attend?

Consideration of the above by the Owner and Engineer during contract drafting, and by the Contractor during the project bidding phase should result in the preparation and submittal of the desired information. Some of the more common scheduling problems which I have experienced due to non-specific scheduling specifications and loopholes, include the following:

1. The Contractor refuses to provide a disc, or electronic file, for the original schedule or updates. This severely restricts the information available to the Owner or Engineer. The schedule logic cannot be reviewed, and computer comparisons between schedules cannot be performed. Activity sorts and plots also cannot be done. This problem may be avoided by simply requiring a disc or electronic file to be submitted with each schedule.
2. The Contractor does not include the “float” information on the schedule submittal. This is critical information which can prevent identification of the critical path or sub-critical activities. Basically, it prevents a proper review and analysis of the schedule. Solution - require this information on the schedule plot, and require and electronic file.
3. The Contractor stops updating the schedule and the Owner or Engineer does not enforce the specifications which require it. This is a sure fire way to invite problems into your project. Insist that updates are submitted as required. Tying progress payments to receipt of schedule updates provides great motivation!
4. The Contractor changes the means, methods, or sequence of his work, but does not change the schedule to reflect this. When this happens the schedule ceases to be an effective management tool. The specifications should require re-submittal and re-approval of the schedule, if the approved baseline schedule is abandoned or the Contractor significantly varies from it.
5. The Contractor inserts delay activities into the schedule which the Owner or Engineer disagrees with and refuses to accept. The schedule is disputed and the update and approval process becomes locked up. This is a serious breakdown which can lead to many significant problems. The schedule may be abandoned. The Contractor may go to two schedules - one to appease the Owner, and one to manage the work. The situation may force a showdown between Owner and Contractor. The Owner may be forced to direct the Contractor to accelerate, or to conditionally accept the schedule showing the delayed completion date, with the dispute to be resolved at a later date. In this situation, the parties would be wise to agree to disagree, analyze the potential costs of the various options, and attempt to proceed in a manner which mitigates potential costs to both parties. The dispute can then proceed through the resolution process, but hopefully in the interim, the schedule can still be used to manage the project.

B. USE OF FLOAT vs. RIGHT TO EARLY COMPLETION
This is another issue which sometimes arises in construction contracts. The Contractor plans to complete the project earlier than required by the Contract. The Contractor submits a schedule demonstrating this, which the Owner approves. The Owner then delays the Contractor, but refuses to grant a time extension or to pay additional costs. The Owner claims that it has the right to use the “float” in the schedule, between the Contractor’s planned completion date and the Contract required completion date. This is an incorrect definition of “float” and is in conflict with the Contractor’s right to early completion. Owners are leery of accepting schedules showing early completion, because they think that Contractors are “setting them up” for delay claims. It is rather common, then, to see scheduling specifications which require the Contractor to use all of the time allotted for construction in the contract. The Contractor’s schedule activities must start at the Notice to Proceed and continue to the required completion date. Under this type of contract the Contractor effectively loses the right to complete the project early. The Owner also loses any benefit it might have received by getting its projected earlier than planned.

Owners should be aware that, on occasion, more time is allowed in the contract than is reasonably required for construction. Contractors may recognize this, and estimate and bid the project for a shorter duration. This will give the Contractor a competitive advantage The Owner conceivable would get a lower price and take possession of its project earlier than planned. This may be a benefit to all concerned. If the contract allows it, and the Contractor plans to complete early, then his schedule submittal should show this. The Contractor needs to communicate this intent to the Owner. If the Owner accepts the schedule, then it must be prepared to grant time extensions, and pay additional costs for compensable delays, if the Owner delays the Contractor, and prevents completion by the approved early completion date.

A Contractor may also schedule a project to complete earlier than required, to build in a contingency against late completion, and to avoid the assessment of costly liquidated damages. A Contractor may also schedule for early completion to receive bonus compensation, where incentives for early completion are included in the contract. In these situations, the Owner and Engineer must equitably administrate the contract time, or disputes are likely to develop.

C. TYPES OF DELAYS
Most construction contracts include provisions which allow for the extension of contract time due to various types of delays. These delays may be the responsibility of the Contractor, the Owner, or beyond the control of both parties. In order to qualify for a time extension a Contractor must usually give timely written notice of a delay, and then prove that the event caused delays to the projects’ critical path activities - that event actually delayed completion of the project. Some types of delays result in only a time extension. Other types of delays entitle a contractor to additional compensation as well as a time extension. Similarly, the Owner may be entitled to liquidated or actual damages if the project is completed late due to delays which are the responsibility of the Contractor.

The four types of delays recognized by the industry and usually addressed in construction contracts are as follows:
1. Excusable Delay
2. Non-Excusable Delay
3. Compensable Delay
4. Concurrent Delay

Excusable delays are those caused by events beyond the control of the Owner and Contractor. Typical examples include fires, floods, epidemics, abnormal weather conditions, and Acts of God. Usually, an excusable delay will entitle the Contractor to only a time extension, but not additional compensation. Both the Contractor and Owner are expected to absorb their costs of being on the job longer, and Owner accepts completion of the project later than originally required by the contract.

Non-excusable delays are those which are the responsibility of the Contractor, or his subcontractors or suppliers, for which there is no relief under the contract. Examples include equipment breakdowns, lack of manpower, accidents, substandard productivity, late delivery of materials or equipment, and mismanagement. If the Contractor is responsible for this type of delay, he receives no time or money. The Contractor must make up the time by resequencing, or accelerating the work; or risk the assessment of liquidated or actual damages by the Owner, for late completion. If the contract contains a “time is of the essence” clause, the Contractor is at risk for default termination, if he is behind schedule an  will fail to complete by the required contract date.

Compensable delays are those for which the Owner is responsible. Delays resulting from actions or inactions of parties under the Owner’s control would also normally be compensable; this would include the Architect, Engineer, Geotech, parallel prime contractors and suppliers of Owner furnished equipment. Contractors are entitles to time and money for most compensable delays. Examples of compensable delays include differing site conditions, late or incomplete access to the site, late approval of shop drawings, design defects, overzealous inspection, and late delivery of Owner furnished material or equipment Concurrent delays are when two or more delays are simultaneously delaying the progress and completion of the project. The delays may be any combination of the three types of delays noted above. Specific contract requirements should be consulted regarding the treatment of concurrent delays. The usual practice is that the delay time must be apportioned to the various causes and responsible parties. A portion of the delay may be excusable and warrant time only. A portion may be compensable and justify time and money, and a portion may be inexcusable and the Contractor gets no time or money for this part.

Deciphering concurrent delays can become complex. Some important things to consider are the order in which the delays occurred, and would the project have been delayed by one or two particular causes, regardless of the other concurrent events. Are certain delays really controlling progress and others not? Sound logic analysis and “what ifs” work well here. On projects which suffer significant delays, it is common practice for Contractors to reschedule the remaining work, postpone deliveries and push back subcontractors. Just because these activities are performed later than originally scheduled does not make them concurrent delays. This is a misconception that does take place in the industry.

D. FORCE MAJEUR
Force Majeur is a clause commonly found in construction contracts. The American Heritage Dictionary defines Force Majeur as “1. Superior or overpowering force. 2. An unexpected or uncontrollable event”. Black’s Law Dictionary includes the following on Force Majeur: “. . .  . Such clause is common in construction contracts to protect the parties in the event that a part of the contract cannot be performed due to causes which are outside the control of the parties and could not be avoided by exercise of due care. See also Act of God; Vis major.”
Force Majeur clauses are usually synonymous with excusable delay provisions. Remedies for delays due to Force Majeur are therefore, usually limited to time extensions only. Below are excerpts from one of the most comprehensive Force Majeur clauses I have encountered.

Force Majeur
“A delay in or failure of performance (other than payment of money) by either PARTY hereto shall not constitute DEFAULT, nor shall either PARTY be held liable for any resulting loss or damage, if any, to the extent such delay, failure, loss or damage is proximately caused by occurrences beyond the control of the PARTY affected, including, but not limited to,
1. fortuitous circumstances or acts of the public enemy;
2. expropriation or confiscation of the PROJECT, the SITE or the FACILITIES;
3. compliance with any order or request of any national GOVERNMENTAL AUTHORITY or PERSON purporting to act therefore;
4. acts of declared or undeclared war;
5. any weapon of war employing atomic fission or radioactive force, whether in time of peace or war;
6. public disorders, rebellion, riots, sabotage, revolution;
7. earthquakes, floods; named tropical disturbances;
8. union labor strikes (other than strikes undertaken only by the personnel of the PARTY affected);
9. inability of a PARTY to obtain necessary materials or permits due to existing or future laws, rules or regulations of national governmental authorities, whether direct or indirect;
10. or any causes whether or not the same class or kind as those specifically above named not within the control of the PARTY affected and which, by the exercise of reasonable diligence,
said PARTY is unable to prevent. . . .”

E. NO DAMAGES FOR DELAY
Occasionally, contracts will contain what is called a “no damages for delay” clause. This clause attempts to prevent the Contractor from receiving any additional costs, due to what would normally be compensable delays. Time is the only remedy offered for delays, even those caused by the Owner and other entities under the Owner’s control. An example of this type of clause follows:

No Damages for Delays
In the event the Contractor is delayed in the prosecution of its work by any act, or omission to act, of the Owner or its representatives, the Contractor agrees to make no claim for damages for delay in the performance of the contract, and agrees that any such claim shall be fully compensated for by an extension of time to complete performance.

No damage for delay clauses attempt to shift the risk for Owner caused delays to the Contractor. The clauses are generally considered against public policy and poor contracting practice. Parties should avoid contracts with this type of clause. Not only is it inequitable, but it is the source of many disputes and lawsuits.

Because of the onerous nature of such clauses, the courts have many times refused to enforce the clauses, by construing them strictly against the Owner. There are four recognized exceptions to the enforcement of no damages for delay clauses. These are as follows:
1. Delays caused by active interference by the Owner. Includes bad faith, or willful, malicious or grossly negligent conduct.
2. Delays not within the contemplation of the parties at the time of contract formation.
3. Delays so unreasonable that they constitute abandonment of the contract.
4. Delays resulting from the breach of a fundamental obligation of the contract.

At times contractors have included “no damage for delay” clauses in subcontract agreements. Enforcement of such clauses would be subject to the same exclusions to enforcement noted above.

F. SUBSTANTIAL COMPLETION VS. LIQUIDATED DAMAGES
Owners, at times, assess liquidated damages after the Contractor has achieved substantial completion. This action will not be enforced in most jurisdictions. Substantial completion is usually defined as the date on which the project is at the stage of completion, which will allow beneficial occupancy and use by the Owner. The Owner does not have to take occupancy; the project just has to be ready. The issuance of a Temporary Certificate of Occupancy (TCO) is also evidence that a project has reached substantial completion.

Liquidated damages are a reasonable estimate of the damages which an Owner will incur if it is unable to occupy and/or use its project by the required contract completion date. It is an estimate because the actual damages are too undefined or speculative to compute. So when a Contractor achieves substantial completion, the project is ready for Owner use or occupancy, and the basis for the liquidated damages no longer exists. That is why in most instances, assessment of liquidated damages after substantial completion will not be enforced.


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