construction delay claims: proving and defending...

Presenting a live 90‐minute webinar with interactive Q&A

Construction Delay Claims: Construction Delay Claims: Proving and Defending DamagesLitigating Disputes Over Design Changes, Differing Site Conditions and Other Sources of Delay

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, AUGUST 9, 2011

Today’s faculty features:

Robert A. Meynardie, Partner, Meynardie & Nanney, Raleigh, N.C.

Timothy L. Pierce, Partner, K&L Gates, Los Angeles

Stanley A. Martin, Partner, Duane Morris, Boston

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C i D l Cl i Construction Delay Claims: Proving and Defending Damages

Bob MeynardieMeynardie & Nanney, PLLC333 Fayetteville Street Suite 500333 Fayetteville Street, Suite 500Raleigh, North Carolina 27601(919) 747‐7373bob@mnlaw‐nc.com

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D l Delay AccelerationL f L b P d i i Loss of Labor Productivity Out of Season / Out of Sequence

Equipment or Material Price Escalation Equipment or Material Price Escalation

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Site Access Site Access Unidentified Utilities and Utility Relocation Differing Site Conditions Governmental Approvals Payment Delays Inadequate/Inaccurate Designq / g Untimely Approval of Submittals Interference with M&M

O li d i d l Owner‐supplied equipment delays Scope Disputes Inspection Delaysp y

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No delay should entitle the contractor to either an extension of the contract completion period an extension of the contract completion period or additional compensation unless the delay affects the critical path of the schedule.p

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Must clearly define: The type of schedule required. The time for submission of original schedule and updates. Th l l f d il ( i ) i d The level of detail (time, resources, cost) required.

An enforcement mechanism to ensure periodic updates, construction that maintains the schedule and is built construction that maintains the schedule and is built according to the schedule.

Consistent with the requirements for a time extension.

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Identification of all activities required to complete the project.Li ki h i i i id if h l i l Linking those activities to identify the logical and/or required sequence of activities and the logic connecting themlogic connecting them.

Computerized forward and backward passes through the activities to determine the longest through the activities to determine the longest sequence of activities.

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Excusable Non‐excusable Compensable Noncompensable

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D l f hi h th i k h t b ll t d t th Delays for which the risk has not been allocated to the contractor.

Acts of God Acts of God. Normal and Unusual Weather. Delays caused by omission or commission of the Delays caused by omission or commission of the Owner.

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Those excusable delays for which the contract provides an extension of time and compensation.

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Multiple delays that have concurrent effects on the critical path of the project.

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Under certain circumstances a contractor may be entitled to either excusable or compensable delay in entitled to either excusable or compensable delay in spite of a concurrent non‐excusable delay.

In the face of another delay, the contractor‐caused delay may be found to be a “pacing” delay. That is the contractor may have slowed production as a result of a known owner caused delay to avoid “hurry up result of a known owner‐caused delay to avoid hurry up and wait.”

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Only delays that impact the critical path (by definition, these affect the end date of the entire project) are compensableproject) are compensable.

Delays to non‐critical path activities are not compensable.p

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Technical definition: the difference between the early start yand the late start or the early finish and the late finish of an activity.L ’ d fi i i Th f i il bl Layman’s definition: The amount of excess time available to complete activities not on the critical path.

Bottom line: The amount of time by which an activity or a Bottom line: The amount of time by which an activity or a path of activities can be delayed without delaying the critical path of the whole project.

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Consider a 30 day delay to a path that has 20 days of float. The delay consists of 10 days of contractor delay, 10 days of owner delay, and 10 days of excusable but noncompensable delay.delay.

Whether the contractor is entitled to an extension or an extension and compensation depends on which delay

f d d h doccurs first, second and third. The use of float is first come, first served.

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Absent a contractual provision to the contrary, a contractor is entitled to complete the project in less p p jtime than allowed by the contract.

In this scenario, the contractor may be entitled to delay damages even where the project finishes early.

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By definition, a cardinal change makes such a fundamental change in the scope of the work that fundamental change in the scope of the work that the contractor cannot be held to perform under the changes provisions of the contract.the changes provisions of the contract.

The question is a matter of degree and determination is subjective.j

Delays, when significant enough, can be cardinal changes.g

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Cardinal change allows the contractor to recover Cardinal change allows the contractor to recover damages in excess of the contract measure. Reasonable value of the services.

Cardinal change may be considered a material breach by the Owner allowing the Contractor to terminate the contract.

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Contact Information

B b M diBob MeynardieMeynardie & Nanney, PLLC

333 Fayetteville Street, Suite 500Raleigh, North Carolina 27601

(919) 747‐7373bob@mnlaw‐nc.com

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C t ti D l Cl i P i dConstruction Delay Claims: Proving and Defending Damages

Timothy PiercePartner K&L Gates

Copyright © 2010 by K&L Gates LLP. All rights reserved.

Los [email protected]

A. Contractor Extended Site Overhead

1. State Claims Requires some form of schedule analysis Accounting for overhead costs Can only recover costs that are time related. Rent, utilities, personnel typically are time

related Is equipment on the job time related or task Is equipment on the job time related or task

specific? Insurance is typically not time related

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2 Specific Issues on Federal Projects2. Specific Issues on Federal Projects

DCAA or OIG Audit generally required If over $100k, must be certified under

Contract Disputes Act and subject to False Claims ActClaims Act Must be approved at a settlement level Must exhaust administrative remedies prior p

to appeal CO Final Decision or Deemed Denial Full schedule and cost analysis

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Full schedule and cost analysis


3 I t f N D f D l3. Impact of No Damage for Delay Clauses

Still viable in many jurisdictions Still viable in many jurisdictions Some states place limits on such clauses For example – Cal. Pub. Con. Code 7102For example Cal. Pub. Con. Code 7102

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3. Impact of No Damage for Delay Clauses

Such clauses are generally strictly Such clauses are generally strictly construed. Typical exceptions courts apply:yp p pp y Delay not reasonably contemplated Bad faith, fraud, active interference or gross

negligence by the owner or its representativesnegligence by the owner or its representatives Unreasonable delay amounting to an

abandonment of the contract.

Labor inefficiency excluded by such

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Labor inefficiency excluded by such clauses?

B. Contractor Labor Inefficiency

1 G l1. Generala. Proof Can Be Challenging

Proof is the challenge, making contemporaneous record keeping the key Measured Mile is the best if not only approach thatMeasured Mile is the best, if not only, approach that

will succeed; Comparing efficiency to the isometric may be required

MCAA Factors USACE CII Studies alone likely willMCAA Factors, USACE, CII Studies alone likely will not fly, but may be useful as a cross reference

“Sanity checking” results against cost report a must

Total cost approach nearly impossible

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Total cost approach nearly impossible

C. Contractor Home Office Overhead

1 Home Office Overhead Eichleaya. Theory is “unabsorbed home office

overhead”

1. Home Office Overhead – Eichleay

Unearned profits on idle forces? Eichleay Corporation, ASBCA No. 5183, 60-2

BCA ¶2688 (1960), aff'd on recon., 61-1 BCA ¶2894 Recent case law restricting use of EichleayRecent case law restricting use of Eichleay Eichleay looks at the amount of overhead

covered by specific project and amount that is

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not covered due to delays.

C. Contractor Home Office Overhead

1 Home Office Overhead Eichleaya. Federal Federal law is clear

1. Home Office Overhead – Eichleay

Federal law is clear Eichleay Corporation, ASBCA No. 5183, 60-2

BCA ¶2688 (1960), aff'd on recon., 61-1 BCA ¶ ( )¶2894 Recent Case law restricting use of Eichleay

b St tb. State Not much different – Maryland, Virginia,

Ohio Texas others follow Eichleay

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Ohio, Texas, others follow Eichleay

D. Owner Damages1. Scope of Recoverable Damages

a. Direct Damages Site costs

CM d A/E t CM and A/E costs b. Home Office Costs

Recoverable if not direct? Recoverable if not direct? No equivalent Eichleay theory.

c. Liquidated Damagesq g Rather than actual damages?

d. Consequential Damages

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The big unknown

E. Owner Liquidated Damages1. General

a. State and Federal Now in virtually all contracts Unenforceable if considered a penalty Only assessable on inexcusable,

contractor-caused delaycontractor-caused delay Will “no harm no foul” apply?

b. Are liquidated damages good for the owner and/or contractor.

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F. Consequential Damage1. Basic Principles

a Statea. State Are limitations in contracts enforceable? Are consequential damages defined?Are consequential damages defined?

b. Federal No consequential damages Argue over what constitutes consequential

damagesP ti l S l ti t C ti lc. Practical Solutions to Consequential Damage Exposure Complete waiver

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Co p ete a e Reasonable limitations

Best Practices to Minimize Construction Delay Claims – Contract Termsy

• Notice Be fair Avoid “forfeiture” clauses

Li id ti d l t• Liquidating delay costs Consider specifying per diem amount

• No damages for delay clause• No damages for delay clause Polarizing clause Per diem on general conditions is often acceptable

www.duanemorris.com

Or carve out owner-caused delay

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Best Practices – Contract Terms

• Define nature of schedule info and data required Include periodic updates, plus updates in the event of a major

t hevent or change Schedule obligations should match the project size, scope and

complexity

• Define rights of the parties on schedule issues Identify allocation or use of float Identify whether owner can insist on acceleration in the event Identify whether owner can insist on acceleration in the event

of an otherwise excusable delay Specify contractor’s obligations for work-around if there is

contractor caused delay

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contractor-caused delay

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Best Practices – Claims Avoidance

• Communication is key• Team spirit really worksp y• Culture of problem-solving works• If you can’t avoid the claim:If you can t avoid the claim:

Be factual Support position with facts, including schedule updates Miti t d l Mitigate delays Keep an open mind

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Best Practices – Real-Time Claim Resolution

• Multi-step dispute resolution processp p p Project-level personnel given 48 hours Escalate to project-management level, for 48 hours Then escalate to upper management Then escalate to upper management Include next step if still no resolution (e.g., mediation)

• Claims don’t go away on their owng y Usually become more protracted Project personnel become wedded to positions Upper management sometimes does not hear the truth

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Upper management sometimes does not hear the truth

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Best Practices – Real-Time Claim Resolution (cont’d)( )

• Consider use of schedule expert/consultant for pinterim assessment

Shared by the parties?

• Bring all involved parties to the table e.g., subs, vendors, designers who played a role in the

delay eventsdelay events

• Make sure all associated aspects of the schedule claim are resolved, with no loose ends

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claim are resolved, with no loose ends

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Best Practices – Post-Project Dispute Resolution

• Direct negotiationg• Facilitated negotiation (mediation)• Joint expertJoint expert• Arbitration• LitigationLitigation


Use of Schedule Experts

• Considerations:– In-house versus independent– Approach to schedule analysis

What schedule delay technique will the expert employ? (see slides 9 and 10)slides 9 and 10)

Is this technique consistent with administration of the schedule during the project?

Testif ing e perience req ired or not– Testifying experience required or not What is the overall strategy for resolution?


Use of Schedule Experts (cont’d)

• Credibility arises out of the detail• Facts can’t be rearranged afterwards to suit the g

analytical approach• Reality checks are required• Conceding one’s own problems will buttress the

overall analysis


Schedule Delay Methodologies

• As-planned versus as-built Simple, but fails to include causative factors.

• Impacted as-planned Assumes original logic was fine; fails to incorporate actual

eventsevents.

• Collapsed as-built Removes excusable delays in order to gauge actual

completion in absence of such delays; may fail to account for logic or other changes.


Schedule Delay Methodologies (cont’d)

• Phase analysis (“windows” or “time slice”) Breaks project down into phases or “windows” and looks at

th i t f h ti R i t i fthe impact of each portion. Requires accurate info.

• As-built Often the only option if the original schedule was lacking in Often the only option if the original schedule was lacking in

substance or detail.

• Contemporaneous Considered to be most accurate, since logic changes and

other current factors are treated appropriately.


Contact Information

Stan MartinDuane Morris LLP

Boston, MA857-488-4278

[email protected]


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