Construction Claims Delays

Construction Claims: Delay Page 1 of 23

At the conclusion of this course, you will:

• Understand the different types of delays, including concurrent delays • Understand the use of Critical Path Method (CPM) Schedules in proving delays • Know how to determine delay using four different schedule methodologies • Know what damages resulting from delay may be recovered and how to calculate

those damages • Understand how courts and boards actually determine delay claims

Introduction Rare is the construction project that does not encounter some sort of delay since, by its very nature, a construction project necessitates that various entities interface with one another. Any one or more of these entities can cause a delay, whether it be the owner, the designer, the contractor, the subcontractor, the supplier, or nature, among others. The most common causes of delays are defective plans and specifications, design changes, differing site conditions, adverse weather, unavailability of labor, materials or equipment, and owner interference. Although delays are common occurrences on construction projects, it is important to distinguish between those delays that are critical and those that are not. A critical delay is one that delays the overall completion of the project because it has extended the time for completing the project beyond that which was originally planned. A noncritical delay is one that affects the performance of a particular activity without impacting the completion of the overall project. However, it is possible for a delay to increase the cost of performing work on the project without extending the completion date, as in the case of acceleration, out-of-sequence work, or suspensions of work. Delay Claims Types of Delay Depending on the type of impact, delays are categorized as either non-prejudicial delays or prejudicial delays.

1. Non-prejudicial delays impact a portion of the work within the available float time but still allow the project to be completed within the time period specified by the contract. Therefore, although a portion of the work is delayed, the project is not delayed by a nonprejudicial delay.

2. Prejudicial delays impact a portion of the work and exceed the total float available, thereby delaying the project.

Prejudicial Delays There are two types of prejudicial delays:


1. Excusable delay 2. Nonexcusable delay

1. Excusable Delay An excusable delay is any delay that is beyond the control and fault of the contractor. An excusable delay is caused by an event or circumstance such as, but not limited to, weather, fire, flood, acts of God or the public enemy, acts of interveners, or acts of government. In addition, delays which are caused by the owner are excusable. In the case of an excusable delay, the contractor is entitled to a time extension. Excusable delays may be:

a. Compensable b. Noncompensable.

1.a. Compensable Delay A compensable delay is not the contractor’s fault nor has the contractor been in any way negligent. Rather, a compensable delay is the owner’s fault. In cases of compensable delay, the contractor is granted a time extension and is paid for that extended period of time. Typical causes of compensable delay may be changes to the work, additional work, suspension of work, and owner interference. 1.b. Noncompensable Delay According to contract provisions, weather delays, strikes, and acts of God are generally noncompensable. Therefore, for an excusable/noncompensable delay, the contractor is entitled to a time extension, but not to delay damages. 2. Nonexcusable Delay A nonexcusable delay is caused by events or circumstances that are within the control of the contractor and might have been avoided by the contractor’s exercise of care, prudence, foresight, or diligence. Therefore, a nonexcusable delay is the contractor’s fault. Because it is the contractor’s fault, the contractor is not entitled to a time extension and the owner may assess liquidated damages, or actual damages if the contract does not contain a provision for liquidated damages. Figure 1, “Classification of Delays,” illustrates how delays are classified in terms of type of impact and responsibility.


Concurrent Delay Excusable and nonexcusable delays are fairly straightforward. However, the issues become more complicated when elements of these two types of delay overlap, resulting in what is termed concurrent delay. Determining fault and assigning responsibility can be very difficult when there is concurrent delay. However, there are general rules that have been developed throughout the industry by the Courts and Boards of Contract Appeal in determining what is recoverable when there is concurrent delay. 1. Excusable/noncompensable + Excusable/compensable The excusable/noncompensable delay controls in situations where there are concurrent excusable/compensable and excusable/noncompensable delays. The contractor is entitled to a time extension, but no monetary compensation, for the delay since the contractor would still have been delayed regardless of the excusable/compensable delay. Therefore, the contractor is not entitled to recover its damages. Consider the following scenario. A forest fire spreads to a road project, suspending work on the project. The forest fire constitutes an excusable delay since it is not the fault of either the contractor or the owner. Meanwhile, the owner has not yet returned the shop drawings for the project, preventing the contractor from moving forward on the project. This constitutes a compensable delay for the contractor since it is the owner’s fault. But, because the excusable/compensable delay (no shop drawings) overlaps with an excusable/noncompensable delay (forest fire), the result is an excusable/noncompensable delay. The contractor is granted a time extension but is not


allowed to recover the cost for that time, even though a compensable delay was involved. 2. Excusable + Nonexcusable Generally, courts and boards have ruled that when delays exist that are excusable and nonexcusable, neither the contractor nor the owner may recover its damages. Unless the contractor is able to apportion the delays that are concurrent, the courts would deny a time extension. Let us return to the previous scenario. If a forest fire shuts down a road project (excusable delay), but the contractor failed to have the proper equipment at the project site (nonexcusable delay), the contractor cannot recover damages. However, if the contractor can apportion that part of the delay that is excusable, the contractor can be granted a time extension. In McDevitt & Street Co. v. Marriott Corp., 713 F. Supp. 906 (1989), the Court denied the contractor’s request for a time extension because the contractor, McDevitt & Street, could not prove that the delays caused by the owner extended the project completion beyond the date attributable to its own delays. In Appeal of Gulf Construction Group, Inc., ENG BCA No. 5961 (October 13, 1993), the Corps of Engineers Board of Contract Appeal denied recovery for both the contractor and the owner because a nonexcusable delay overlapped with an excusable/compensable delay. In this case, the contractor, Gulf Construction Group, was delayed on a floodgate rehabilitation project when the owner provided the contractor with faulty equipment, thereby causing a compensable delay. However, during the final months of the project, the contractor fell behind in its electrical work. Since the electrical work was on the project schedule’s critical path, meaning that a delay in the electrical work would cause a delay in the completion of the overall project, falling behind on that work constitutes a nonexcusable delay since it was the contractor’s fault that the work was behind. Therefore, the concurrency of the nonexcusable delay with the excusable/compensable delay resulted in an excusable, though noncompensable, delay and the Board ruled that neither party could recover damages. Since each delayed the other, and the delays were thus “intertwined”, the Board stated that it “leaves the parties where it found them.” 3. Excusable/nonprejudicial + Excusable/compensable Generally, when nonprejudicial delays are intertwined with excusable/compensable delays, the contractor may recover time and damages. In Wilner vs. United States, 23 CL Ct. 241 (1991), the United States Claims Court ruled that the overlap of a nonprejudicial delay with an excusable/compensable delay resulted in an excusable/compensable delay. A construction project finished seven months behind schedule. The contractor, Wilner, submitted a delay claim. However, the contractor suffered delays that were not on the project schedule’s critical path, which results in a nonprejudicial delay since the delays did not impact the timely completion of the project. Nevertheless, the project incurred other delays that were on the critical path, meaning that they delayed the completion of the project. The owner argued that the contractor’s claim should be denied because the delay claimed by the contractor was caused by issues that were not critical to the completion of the project. However, the Board ruled that the existence of concurrent delay on the project does not in itself preclude the contractor from recovering damages. The Board further ruled that the nonprejudicial delay, which did not impact the project’s completion date, did not preclude the contractor from recovering damages. The contractor was therefore allowed to recover damages for those delays that were caused by the owner.


Apportionment of Delay The remaining problem is how to apportion responsibility for the different delays involved in a concurrent delay. To establish the individual delays for which time extensions and compensation are sought, it is necessary to determine whether or not the contractor was independently delaying the project, and whether two or more delays occurred that affected the same time period or overlapped with a portion of the delay period. If the contractor delays the project, that is, if there is a concurrent nonexcusable delay, the general rule is that it would be inequitable to grant the contractor a time extension and/or compensation unless the contractor can segregate the portion of the delay that is excusable and/or compensable from that which is not. If there is no clear apportionment of the delay and expense attributable to each party, then neither party can recover damages. In Blindereman Construction Co. v. United States, 695 F.2d [552 (Fed. Cir. 1982)], the Court of Appeals for the Federal Court stipulated the following rule: “[w]here both parties contribute to the delay, neither can recover damage[s], unless there is in the proof a clear apportionment of the delay and the expense attributable to each party.” Courts will deny recovery where the delays are concurrent and the contractor has not established its delay apart from that attributable to the owner. Therefore, the contractor can only recover if it can establish that the owner delayed the work and if it can prove how much of the delay was chargeable to the owner. When owners and contractors concurrently delay the work, and the responsibility for the delay cannot be apportioned, the contractor is generally not liable for liquidated damages. For example, in Appeal of H.A. Kaufman Co., PSBCA No. 2616 (July 31, 1990), the Postal Service Board of Contract Appeal ruled that the contractor-caused delay can be segregated from the delay caused by the owner and that the contractor was allowed to recover for the compensable portion of the delay. While acknowledging that the contractor incurred delays, it nevertheless found that the contractor may recover from the owner-caused delay, even though the contractor contributed to the delay, if the period of owner-caused delay is distinct from periods of contractor-caused delay and the resulting cost increase can be separately identified and documented. Since the contractor was able to segregate the compensable portion from the nonexcusable portion, the contractor was allowed to recover for the compensable portion of the delay. In another case, William Enterprises, Inc. v. Strait Manufacturing & Welding, Inc., 728 F. Supp. 12 (D.D.C. 1990), the U.S. District Court ruled that a contractor correctly used Critical Path Method (CPM) schedules to show that a portion of the project’s delay was attributed to a subcontractor. The prime contractor on the construction of a high school gym in Washington, D.C., Sherman R. Smoot Co., subcontracted with Strait Manufacturing & Welding, Inc. for structural steel fabrication and erection. A structural steel collapse caused a complete shutdown of the project. Using CPM schedules, the contractor was able to show that the critical path had been delayed 106 days by the collapse. The contractor demonstrated that there were 23 days of concurrent delay; therefore, it should be entitled to recover damages from the subcontractor for the remaining 83 days of nonexcusable delay. The Court agreed with the contractor, and finding that delays can be segregated and the associated damages may be recovered. Assume that, in the case of William Enterprises, Inc. vs. Strait Manufacturing & Welding, Inc., the structural steel fabrication and erection were not on the project


schedule’s critical path. In this scenario, the delay would qualify as a nonprejudicial delay that is using up the available float and thus has no impact on the completion of the project. The contractor would have no case to claim that the project was delayed by the subcontractor, even though the steel collapsed. Thus, no damages would be awarded to the contractor for the time associated with that collapse. Delay Analysis In order to prove a delay claim, the claimant must be able to provide evidence of the delay and its impact on the performance of the work. Project schedules provide vital evidence for proving or refuting delay claims because they provide a detailed medium for comparing and measuring time and intent, and can thereby help to establish the claimant’s entitlement to both the delay and any additional costs caused by the delay. Prior to the start of a project, an as-planned schedule should be generated to reflect how the contractor intends to complete the project; once a project is completed, an as-built schedule should be generated that reflects how and when the work was actually accomplished. Comparing the as-planned schedule to the as-built schedule provides the initial step in identifying potential delay issues and indicating the direction that the investigation of a potential delay claim should take. However, such a comparison should be used only as a first step and not as a method for proving entitlement, as demonstrated in Morganti National, Inc. v. The United States. In Morganti National, Inc. v. The United States, United States Court of Federal Claims, 2001, the contractor, Morganti was terminated for default for failing to make progress in constructing a 1,000 bed detention center in Brooklyn, New York. Morganti argued that the owner, Federal Bureau of Prisons (FBOP), excusably delayed its performance and that the termination was a material breach of the contract. The contract between Morganti and FBOP required that the contractor submit a Time Impact Analysis in support of any requests for time extensions. The contractor’s original baseline schedule became hopelessly out of date due to numerous contract modifications, so the parties agreed to evaluate for delays and grant time extensions based on a revised schedule. At trial, the contractor brought in a scheduling expert whose opinion was based on an as-built analysis of the contractor’s performance as compared to the original baseline schedule. The delay analysis by the contractor’s expert never referenced the durations or logic of the agreed upon revised schedule. The court stated in its opinion that the analysis by the contractor’s expert was in essence a “total time” approach, which is of virtually no value. The expert “simply takes the original and extended completion dates, computes the intervening time or overrun, points to a host of individual delay incidents for which defendant was allegedly responsible and which ‘contributed’ to the overall extended time, and then leaps to the conclusion that the entire overrun time was attributable to defendant.” In its opinion, the Court continually looked to contemporaneous schedules to quantify the delays, and refused to rely upon a comparative as-built analysis. The construction industry uses a variety of scheduling methods and uses any one method in a variety of ways to manage a construction project. While the most frequently used construction schedule is the bar chart, courts have consistently held that bar charts are less effective than network diagrams as a scheduling technique to show the cause of delays or to apportion multiple causes of delay. This is due to the fact that bar charts represent work activities as a series of bars, each with a start and finish date, whereas network diagrams show the interrelationships and interdependencies of work activities. Since construction projects have become increasingly more complex and utilize more specialized fabricators and subcontractors, there are more opportunities for delays.


Usually, multiple delays occur, interacting with each other until it is often impossible for any individual to sort them out and determine which affected the completion date, when, and to what extent. Therefore, a reliable project schedule, calculated by a computer, that uses a network, like a Critical Path Method (CPM) schedule, can identify which delays really prevented the timely completion of the project, which delays really did not matter, and how much each of the delays that matters contributed to the late completion. For example, in Mega Construction Company, Inc. v. United States, 29 Fed. Cl. 396, the United States Court of Federal Claims rejected a delay claim from the contractor, Mega Construction Company, performing work on a post office building in California because it used bar charts instead of a CPM schedule to try to prove the delay. The contractor claimed that the owner caused a 272 day delay on the project and submitted As-planned and As-built bar charts to prove its claim. However, because bar charts do not show the project’s critical path and do not indicate which activities have float and which do not, the United States Court of Federal Claims ruled that bar charts cannot prove whether the delays were on the critical path and thus the bar charts were inadequate in showing delay. If the contractor had submitted CPM schedules that showed that the activities delayed were on the critical path and thus the critical path was delayed, the United States Court of Federal Appeals could have ruled that the contractor suffered a compensable prejudicial delay. However, in order to prove entitlement, a schedule must be reliable. A reliable schedule meets the following criteria:

1. It is complete. Consider the following example. A contractor on a project to build a high rise office building claims that it has been delayed. It retains the services of a consultant who is a scheduling expert to prove its entitlement. Upon reviewing the schedule, the consultant notices that a key component of the construction is missing from the schedule, specifically the installation of the elevators. The schedule is therefore incomplete, which makes it problematic in proving delay. What if the owner had issued a change order that had nothing to do with the elevators but performing the changed work delayed the installation of the elevators, which was critical to the timely completion of the project? The problem here is that incomplete schedules do not afford an opportunity to evaluate how all activities interact to achieve project completion and all delays are measured by their effect on the entire project. Typical omissions from the schedule are such elements as equipment procurement; shop drawing procedures of submission and approval; fabrication; and, delivery of materials. In addition, contractors may fail to sequence work properly, to recognize and schedule other trade work, such as mechanical and electrical activities, and to interrelate activities with one another. Incomplete schedules can be modified after the fact to permit a more meaningful analysis of project delays.

2. It is updated. The progress of the work being performed must be checked and action taken to bring the work back on schedule or to adjust the schedule to reflect how work is actually being performed. When phases of a project schedule are monitored and rescheduled, the project schedule is updated. Routinely updating the schedule is critical to maintaining a realistic schedule and assessing project delays. Each update can identify start and finish dates for each activity, estimate the percent complete for each activity, adjust the durations of both the completed and incomplete activities, and revise the logic to reflect the current intent of the contractor to complete, improved methods, or unanticipated events.


Significantly, the fact that a schedule has been approved by those involved on the construction project does not, in and of itself, mean that the schedule is a reliable one. Critical Path Method Overview The preparation for computing delays and disruptions has been made easier by the application of computerized CPM schedule analyses which can be performed on projects ranging in size from the smallest to the largest, most complex projects. Courts and boards have recognized the value of CPM schedule analysis in proving and defending delay claims because CPM schedules use an algorithm and are thereby more accurate and reliable than bar charts. CPM schedules include the following basic information:

1. Early and late start and finish dates of each activity 2. A series of logic interrelationships between activities 3. Original and remaining durations 4. Percent complete and total float

Critical Path Activities CPM schedules contain critical and noncritical activities. Critical activities are generally those activities that form the longest path through the project. Delaying the completion of these activities affects the completion date of the project. Similarly, if a noncritical activity is delayed long enough, the completion of the project might also be delayed. If a CPM schedule is used to analyze a delay on a project, it should be updated and kept current to reflect the status of the project and the critical path. However, the following stipulations must be noted. The as-planned schedule usually differs from the as-built schedule because the critical path changes during the length of the construction due to delay, changes, acceleration, or the addition or deletion of activities. As-built schedules are most convincing when proof is based on actual, contemporaneous project information that has been frequently updated in the schedule at the time the events were actually occurring. Float Ownership If the issue of float determines which activities are on the critical path and which are not, then who owns the float? Most contracts do not address the issue of float ownership directly. Some contracts stipulate that float be shared equally by all. If the contract is silent on the issue of float ownership, and there is float in the project that is off the critical path, it is generally accepted that the one who has the right to use available float is the first one that needs it and actually uses it—first come, first served is the principle being practiced here. In Appeal of DEW, Inc., ASBCA No. 35171 (March 20, 1992), the Armed Services Board of Contract Appeal denied the contractor’s request for a time extension. The Board stated that, in order to establish entitlement to a time extension, the contractor must show that the completion of the overall project was delayed. The CPM schedule indicates that the utility lines were never on the critical path; therefore, that activity did not contribute to a prejudicial delay. And, a nonprejudicial delay cannot impact the completion of the project. Therefore, the contractor was not granted the time request. To


qualify for a compensable delay, the activity that is delayed must be on the critical path and thus impact the completion of the project. Similarly, in Appeal of Mit-Con, Inc., ASBCA No. 44509 (November 11, 1992), the Armed Services Board of Contract Appeal denied the contractor’s request for a time extension to remove 36 inches of soil beneath the warehouse, as requested. The Board ruled that the delayed work was not on the critical path and would have no impact on the completion of the project. Since the delay was nonprejudicial, as opposed to prejudicial, the contractor was not entitled to a time extension. On the other hand, in Appeal of Malonbe Construction Co., ASBCA No. 41483 (February 21, 1991), the Armed Services Board of Contract Appeal granted a 16 day time extension to the contractor whose scope of work included a frame addition to a building. The owner provided a faulty design that resulted in a change in connection details and delayed the approval of the shop drawings. The shop drawings were on the critical path. The owner delayed the project by providing a faulty design, which constitutes a prejudicial compensable delay. Because the shop drawings were on the critical path, the contractor was granted a time extension. Right to Finish Early If a contractor submits a reasonable schedule showing a project completion date earlier than the contract date, it is generally accepted that the contractor has the right to finish early. If the contractor plans to finish work on the project before the agreed upon contract time, but this early completion was affected by owner-caused delays, the contractor has the ‘right to finish early’. Consider the following example. The owner issues a contract to the contractor for 12 months of construction. The contractor submits a schedule that shows it is going to complete the work in 10 months, even though the contract stipulates 12 months. If the contractor plans 10 months, and through the course of the project, is delayed two months by the owner and thereby actually finishes work in 12 months, the owner can be responsible for two months of delay because the contractor has the right to finish early. To claim the right to finish early, the contractor must demonstrate that the schedule was reasonable, i.e. that the 10 month schedule was attainable and that the contractor planned to finish early. Figure 3, “Right to Finish Early,” illustrates the contractor’s right to finish early despite a delay.


When the contractor has the right to finish early, the contractor calculates damages from such delays from the early completion date, not the original contract date, unless otherwise stipulated in the contract. The contractor should be compensated for increased costs or lost profits, although the owner may argue that the contractor should only be able to claim delay damages if the original contract time has been exceeded. If the contractor can demonstrate that its planned schedule for completing work early was reasonable and attainable, but the contractor could not finish early as a result of owner-caused delays, the contractor has the right to finish early and recover its damages based on the early completion date. In Appeal of Oneida Construction, Inc./David Boland, Inc., Joint Venture, ASBCA No. 44194 (October 6, 1994), the Armed Services Board of Contract Appeal ruled that the contractor had a right to finish early even though the contractor never informed the owner of its intent to finish early. The contractor was awarded a 90 day contract, and the contractor intended to finish early. However, the contractor was not able to finish early because the owner delayed the project by supplying the contractor with defective specifications. The contractor finished in the 90 days allotted in the contract but argued that it could have finished early, planned to finish early, and would have finished early. The owner claimed that the contractor never informed it of plans to finish early. The Board ruled that it did not matter whether or not the contractor informed the owner that it was going to finish early. The Board ruled that the overriding issue is that the contractor did plan to finish early and could have finished early if not for the delay caused by the owner. In Precision Roofing & Supply, Inc. v. General Services Administration, GSBCA No. 11085 (September 22, 1994), the General Services Administration Board of Contract Appeals denied a contractor’s claim for early completion because the contractor, Precision Roofing & Supply, failed to prove its intent, or ability, to finish early. The contractor contracted with Government to replace the roof on a federal building in


Pine Bluff, Arkansas. The contractor was required to complete the project in 120 days. Although the contractor was delayed by a separate prime contractor, it completed the project in 120 days. The contractor claimed that it would have finished early if not for the delay caused by the separate prime contractor. The Board stated, “We conclude from the record that there is no evidence that the appellant intended to finish early, or that it was capable of finishing early.” Similarly, in Commercial Contractors v. United States, 29 Fed. Cl. 654 (1993), the contractor’s early completion claim was denied on the basis that the contractor’s own As-planned schedule indicated that the contractor did not intend to complete the project before the contract completion date. The Board stated that the schedule showed that the contractor utilized the entire contract period to complete its work and thus denied the claim. Delay Evaluation Methods For a delay or disruption claim to be successful, the causal relationship between an event and the delay or disruption must be established. A claim based solely on liability cannot be successfully litigated unless the delay associated with the claim is proved. There are basically four schedule methodologies which can be used to determine delay:

1. Impacted As-Planned Schedule 2. Collapsed As-Built Schedule 3. Window Analysis Method 4. Update/Impact Method

1. Impacted As-Planned Schedule Analysis In the Impacted As-Planned Schedule Analysis, delay issues are added to the As-Planned Schedule in order to assess their impact on the project’s completion date. This method of analysis consists of inputting actual delay issues that happened during the course of a project into the planned construction schedule to determine the expected date of project completion. Figure 4, “Impacted As-Planned Schedule,” illustrates a simplified Impacted As-Planned schedule.


In this illustration, hundreds of activities are summarized in six bars on a bar chart using the underlying logic of the CPM schedule. This graphic also indicates a planned project completion date in early March 2000. In the impacted as-planned schedule analysis, the consultant examines the actual project record to determine what really happened on this project and what the delay issues are. Those issues are inputted into the as-planned schedule and the schedule is then recalculated using the algorithm of the CPM schedule to produce an impacted as-planned schedule. The impacted as-planned schedule illustrated above shows that the project would have finished around mid-October 2000, not early in March 2000 as indicated in the as-planned schedule. The impacted as-planned schedule shows that the project would have been delayed from March to October, a period of seven months. 2. Collapsed As-Built Schedule Analysis In the Collapsed As-Built Schedule Analysis, affected performance periods—periods of delay--are removed from the as-built schedule in order to arrive at a theoretical project completion date and work sequence. The collapsed as-built schedule is also known as a mitigated schedule, a but-for schedule, or an as-should-have-been-schedule. In this method of schedule analysis, the consultant utilizes the final contemporaneous as-built schedule or must recreate an as-built schedule from project records. All significant delay issues must be incorporated into the as-built schedule, both contractor and owner issues. The consultant then removes all of the delay issues of one of the parties from the as-built schedule, thereby “collapsing” the schedule. The resulting difference between the actual as-built schedule and the collapsed as-built schedule is the amount of delay attributable to that party whose issues were removed from the as-built schedule. Figure 5, “Collapsed As-Built Schedule,” illustrates a simplified Collapsed As-Built schedule.


This method is generally frowned upon by courts and boards because of its theoretical nature in predicting what would have happened had certain delays not occurred. In the above illustration, the as-built model summarizes hundreds of CPM activities into six bars in the form of a bar chart. This illustration shows that the project was actually completed in October 2000 as indicated in the as-built schedule. It also shows that, after the schedule analyst removed the delays from the as-built schedule that were caused by Owner, the schedule collapses to a shorter schedule. In fact, it collapses to May 2000. The period of delay is then measured by the difference between the as-built and the collapsed as-built schedule; in this case, the delay period was five months. 3. Window Analysis Method In the Window Analysis method, the project is segmented into various distinct timeframes and affected performance periods within each successive time segment are systematically evaluated to determine their effect on the overall project completion date. Most importantly, the critical path, and all of the near critical paths, is analyzed within each time segment to determine if the critical path has shifted or if it has been impacted by any delays or acceleration. Consider the following example. A 12 month project has an as-planned schedule of 365 days. However, it actually takes 465 days to complete the project. This produces a delay of 100 days. The challenge is to find out what caused that delay and which party is responsible for that delay. In a window analysis, the schedule would be examined every month it was updated. There should be approximately 15 monthly updates for this project. The schedule analyst would examine the first monthly update to determine whether the project was still on schedule or if it had fallen behind. If the first monthly update shows that the project was still on schedule with a completion date of 365 days, the analyst would proceed to examine the second monthly update. In the second monthly update, the analyst might have found that the completion date had extended from 365 days to 375 days. Therefore, something happened in that month to delay the project completion by 10 days. The analyst would then examine the project schedule’s critical path to determine what activities were on the critical path during the first update


as well as the second update that caused a 10 day delay in the second month of work. The analyst has therefore effectively narrowed the 100 day delay into a 10 day delay in month two. The analyst would then proceed from month two to month three and so on until each monthly update had been reviewed. Specifically, let’s return to our initial example of the road construction project and the forest fire that has erupted nearby. The analyst might discover that the forest fire delayed the project by two weeks in month four. The two week delay discovered at the end of month five might be directly attributable to what happened during that month. The delay caused by the forest fire constitutes an excusable noncompensable delay that, in this case, impacted the completion of the project. In a window analysis, this type of evaluation would be systematically performed for each month of the duration of the project. This type of analysis yields a highly detailed and accurate way to determine what happened on the project, what caused delays, and which parties bear responsibility. However, a window analysis is only as effective as the tools on which it is based, namely timely and accurate monthly schedule updates. Without these, a window analysis becomes very time consuming and very expensive. If an analysis is performed with faulty information, courts will likely reject the analysis and suggest that it should have been performed in a more detailed manner. Figure 6, “Window Analysis Method,” illustrates a simplified example of the Window Analysis Method.

Fig. 6: Window Analysis Method 4. Update/Impact Schedule Analysis


The update/impact schedule analysis method is also referred to as the contemporaneous method and the Corps of Engineers method. The update/impact method is similar to the window analysis method in that it looks forward over distinct and isolated time periods. The primary difference between the update/impact method and the window analysis method is that activities representing delay issues are inserted into the schedule. The schedule is then recalculated to determine the effect of the delay issues, similar to what is done in the impacted as-planned method. The as-planned schedule is reviewed for reasonableness and revised, and becomes the starting point for the analysis. The schedule is first updated to a specific point, usually the end of a month. This statused schedule is then impacted with issues known to have occurred during the next month’s time frame which are believed to have had an influence on an activity’s performance time. The impact schedule is evaluated for the approximate 30 day period following the statused schedule to determine the results of the various issues. The issues are then left in the schedule and the update/impact process is repeated for the next cycle of time. The update/impact procedure is performed sequentially throughout the project performance period. Figure 7, “Update/Impact Method,” illustrates a simplified update/impact schedule analysis.

Delay Damages Proving damages due to delay is critical to the success of a delay claim. Although a delay claim can succeed based on its own merits, it does not benefit the contractor if the


contractor is not paid for damages or if the claim amount is reduced because the contractor is unable to adequately prove damages. When a contractor is delayed, it may suffer damages resulting from lost productivity, idle equipment, escalation, lost profits, and field and home office overhead. Lost Productivity Costs Lost productivity is a decrease in labor efficiency from a productivity level that could have been achieved if not for the specific causes that resulted in the decrease in the first place. Lost productivity thus refers to the additional effort, brought about by unanticipated events, that is required to complete a work activity beyond the resources originally planned. Numerous factors associated with schedule disruption, acceleration and changed work can result in lost productivity, such as the following:

• Increased Crew Sizes • Scheduled Overtime • Additional Shifts • Overcrowding • Stacking of Trades • Reassignment of Manpower • Dilution of Supervision • Impacts to the Learning Curve • Out-of-Sequence Work • Site Access • Adverse Weather • Unavailability of Tools, Materials, and Equipment

In addition to the above, psychological factors such as motivation, loss of morale, and fatigue also impact productivity levels. For example, efficient scheduling bolsters workers’ morale whereas disruptions to the schedule can put workers into a state of anxiety. Workers generally become anxious when they are reassigned to different crews because of unexpected changes, excessive changes, or work phases whose completions have been rescheduled. Such changes cause crews to lose momentum because, with each new assignment, there comes a period of orientation during which workers become familiar with their individual assignments, the locations of tools, and work procedures, thereby learning the routine of a specific, repetitive task at a constant rate. Disruptions to the work cause this learning process, commonly referred to as the learning curve, to deteriorate, which results in lost productivity. In addition, when numbers and sizes of crews are increased, the crews are not as efficiently supervised and are thus less motivated to maintain high standards of productivity. Measured Mile While courts have recognized the difficulty of calculating lost productivity, they have also precluded the recovery of damages when the contractor was unable to prove the cost of lost productivity by an acceptable method. The most successful method for calculating the cost of lost productivity is the Measured Mile Method. This method compares productivity during an unimpacted period of time with the productivity during an impacted period of time. The productivity is calculated for both periods of time, and the difference between the two is calculated and attributed to the impact. To determine the amount of the damages, the difference between these two is multiplied by the hourly rate of the crew and by the associated equipment costs, and those two numbers are then added together.


Following are four court cases in which the Measured Mile Method was used to calculate damages for lost productivity. In General Insurance Co. of America v. Hercules Construction, 385 F.2d 13 (8th Cir. 1967), the court found that the Measured Mile method used by the contractor, Hercules Construction, to compute delay damages for lost productivity was reasonable as a matter of law, despite the appeal of General Insurance Co. of America, and that the contractor’s evidence was admissible since it was logically based in fact. The contractor had contracted with the May Company to construct a parking garage next to one of its department stores, the Famous-Barr Department Store, in St. Louis, Missouri. The contractor subcontracted with Press-Crete to supply custom precast concrete components that the contractor would use to construct most of the parking garage. The subcontract specified that the project was to be completed on August 1, 1962 and that completion of the project was contingent on the subcontractor adhering to the schedule for its work. The subcontractor was scheduled to begin delivery of the precast on January 21, 1962 and to complete delivery on April 15, 1962 in the sequence directed by the contractor’s superintendent. The contractor required a performance bond from the subcontractor, on which General Insurance Company was a surety, to guarantee the subcontractor’s compliance with the terms of its subcontract. The contractor claimed that the subcontractor breached its contract, which delayed the contractor by two months. The subcontractor did not begin to deliver the precast until February 12, 1962, one month later that the date specified in the subcontract, and did not complete delivery until September 1, 1962, four and one-half months after the date specified in the subcontract. In addition, the subcontractor did not deliver the precast components in the proper sequence and, until about May 6, 1962, approximately 25% of the components delivered were miscast or defectively engineered. The contractor was able to demonstrate that its productivity suffered from the time the subcontractor began delivering the precast until May 7, 1962, when the workmanship and sequence of delivery showed a marked improvement, since efficient precast erection depends on the contractor receiving the components properly fabricated, engineered, and delivered in the planned erection sequence. The contractor computed the average labor hour cost (using base wage rates) and the average equipment cost per piece required for erection from February 12, 1962 until May 6, 1962, the period of time during which the subcontractor was experiencing difficulties and delaying the contractor’s progress. These figures were then contrasted with comparable figures for the period following May 6th, when the precast components were delivered in substantially proper sequence with minimal fabrication deficiencies. The difference per piece in what it cost the contractor in base wages and equipment was then multiplied by the number of pieces erected from February 12, 1961 to May 6, 1962 to determine the amount of damages due the contractor. In awarding the contractor the total amount of delay damages claimed--$21,900, the Court held that the Measured Mile Method of comparing costs before and after the breach of contract afforded a reasonable basis on which to evaluate the damage caused by the defaulting party. Similarly, in Natkin & Co. v. George A. Fuller Co., 347 F. Supp. 17 (W.D. Mo. 1972), the court awarded the subcontractor, Natkin & Co., $715,567.00 for lost productivity due to delays caused by the owner. The subcontractor contracted to perform the mechanical portion of the construction of Western Electric’s Shreveport manufacturing plant between July 1966 and July 1967 for a fixed price. Although the subcontractor’s work was accelerated by the contractor and the owner’s refusal to recognize the subcontractor’s requests for time extensions, the subcontractor’s work was delayed due to late contract drawings, vendor drawings, and equipment. In addition to which, both the owner and


contractor adversely affected workers’ morale and caused delay through harassment by taking daily head counts of the subcontractor’s labor and talking to the field workers on a daily basis. As a result, the subcontractor’s labor believed the job was a cost-plus job and developed the attitude that their slowdown did not cost the subcontractor anything. Productivity consequently deteriorated. The subcontractor calculated its damages by comparing the actual costs of performing work in terms of labor hours per each standard piping unit before and after the point in time when the contractor and owner’s actions caused damage to the subcontractor. In awarding the subcontractor damages for lost productivity, the Court stated that the subcontractor used a reasonable method for computing damages and that its evidence had a logical basis in fact. On the other hand, in E.C. Ernst, Inc. v. Koppers Co., 476 F. Supp. 729 (W.D. Pa. 1979), the court determined that the contractor’s methods for calculating damages for lost productivity were not reasonable and thus did not allow the contractor to recover its lost productivity damages. The subcontractor, E.C. Ernst, contracted with the contractor, Koppers, to perform the electrical work on a project to construct on a turnkey basis a coke oven battery and related facilities at Aliquippa, Pennsylvania to produce coke for use in the steelmaking process. The subsequent crash program to complete the project, which had been expanded 70 percent in scope, in a time frame which had only been expanded 27 percent, resulted in the subcontractor being delayed due to trade interferences, stacking of trades, and stop-and-go performance of work beyond the scope of the subcontract. The subcontractor employed a variation of the total cost method to calculate its damages due to lost productivity, which the court rejected. The court stated that the calculations were invalid because the subcontractor hypothetically allocated unpaid journeyman hours on the basis of the number of drawing revisions received per year, which did not take into account that not all drawing revisions required the subcontractor to perform work, and all revisions requiring rework would not cause an equal amount of work. Specifically, the subcontractor had assumed that the effect of drawing revisions was generated in the year the drawing revisions were submitted when, in fact, the effect of drawing revisions are not felt until subsequent years. The Court therefore concluded that using a calculation based on an artificial method of allocation was not a proper substitute for one based on the historical expenditure of labor. In Groves-Black, ENGBCA No. 4557, 85-3 B.C.A. (CCH) 18.398 1985), the Board of Contract Appeals rejected the contractor’s calculation because, although the contractor utilized the Measured Mile Method to compare labor hours before and after the imposition of the inefficiency, the work compared was not similar. Government awarded the contractor, Groves-Black, a contract to construct a dam, channel improvements, and related facilities on the Kaneohe-Kailua Flood Control project in Hawaii. A partial suspension of the work disrupted the contractor’s concrete work and increased its performance cost. The contractor claimed three types of inefficiency: (1) disruption of the normal order of construction and the availability of all work at one time; (2) loss of expected improvements in productivity due to the learning curve; (3) low productivity when the suspended work was resumed due to the loss of experienced workers. The Board concluded that factors other than the effects of learning and experience can also influence construction productivity; that the segments of work were not comparable due to their dissimilarity since the final segment of work was more complicated than the previous three and would actually require more effort rather than less; and, that the inefficiency in one type of work, such as formwork, should not be directly applied to such different items as crane rental and concrete pumping. The Measured Mile Method is the most commonly accepted method for calculating lost productivity damages as long as the following criteria are met, as exemplified in the previous court cases:


1. The work being performed in the periods being compared is similar. 2. There is a period in which the work was not affected by disruption. 3. Labor productivity is not subject to a wide variation within separate periods. 4. Performance during the baseline time period is not subject to circumstances that

might have improved the labor productivity and thus represents a true baseline for comparison.

5. Adjustments are made to the disrupted period to account for other conditions that may have affected productivity.

Equipment Costs A delay not only causes a contractor to suffer lost labor productivity but it also causes a contractor to experience idle or unproductive equipment, the costs of which should be included in calculating the cost of a delay claim. Whereas some equipment is considered overhead, other equipment is treated as a part of production costs and may be charged to performance cost accounts; it is the additional costs associated with production equipment that are more difficult to calculate in a delay claim. The most widely established method for calculating idle equipment charges for equipment owned by the contractor is to use 50 percent of the equipment ownership expense rate published by a recognized authority, such as the Associated General Contractors of America (AGCA). The 50 percent rate includes depreciation, overhaul, repair, interest, taxes, storage, and insurance, spread over the useful life of the equipment to produce a monthly figure. If the contractor’s equipment has been fully depreciated, the contractor might not be entitled to idle equipment costs. On the other hand, charges for idle rented or leased equipment can be calculated by demonstrating the actual charge for the equipment for the extended period caused by the delay. A contractor generally begins to incur idle equipment costs at the time that the equipment was originally to be employed at the site, even if that equipment is not actually present on the site. However, the contractor should also indicate that the idle equipment could not have been used somewhere else. Although the preferred method for establishing equipment ownership and operating costs are actual cost data from the contractor’s own records, those records are often inadequate or incomplete. Therefore, the courts and boards have allowed the contractor to use schedules of predetermined rates to calculate these costs. It is important to note that the contractor must prove that it cannot determine the accurate and complete actual cost for its equipment, and therefore must resort to published rates Courts have accepted published equipment rates based on industry standards for the following reasons:

• Contractors often cannot determine the actual cost of owning and operating each specific unit because all of the expenses, such as gasoline and routine maintenance, may not be tracked by the contractor.

• Equipment rate calculations include salvage or resale value that contractors do not regularly calculate.

• Equipment rates become inflated because of common ownership through an operating company; therefore, rates based on industry standards prevent such inflated rates from being charged.


Escalation Costs Escalation costs are the increased costs that the contractor incurs from performing work in a later period at a higher cost than originally anticipated due to delays. To recover the increased performance cost, the escalation must be unanticipated and must be the result of a delay. Although unanticipated, escalation can be an increase that is known to occur at a future time, such as a wage increase due to a collective bargaining agreement, or an unknown event. The four types of escalation typically encountered in delay claims are materials, equipment, labor, and subcontractor. A contractor can only recover the increased rates for materials, labor, or equipment due to escalation, but should separate these costs from the extended costs caused by delays. When the length of a delay is uncertain and thus prevents firm material, labor, or subcontract orders, the project schedule can be used to show when the materials would have been ordered if not for the delay. The escalated price that resulted from the delay can be calculated with sufficient proof of what the commodity would have cost if the order could have been placed as planned. Labor escalation is difficult to calculate for the following reasons:

• The dates on which costs will increase do not coincide with the start and end dates of the delay.

• Contractors often accelerate in order to reduce the impact of delays; in such cases, the damages associated with delays and those associated with acceleration become difficult to separate.

• Although the project may have been completed within the contract period as a result of acceleration, due to the delay, the contractor might have incurred an anticipated level of greater activity in a period of higher cost rather than in a period of lower cost.

To calculate labor escalation, the contractor must define the level of effort anticipated in each cost period prior to beginning work on the project, which can be effectively accomplished through the use of the CPM schedule. Then the anticipated cost for each performance period can be determined. After the work has been performed, the actual level of activity for each cost period is determined and the actual cost of performing the work in each cost period is calculated. The difference between the anticipated and actual cost for each cost period yields the cost of escalation. Escalation can also include the increased taxes, fringe benefits, and other labor burden that is added to an employer’s payroll.

Material escalation occurs when a supplier’s delivery is delayed beyond the performance period defined in the purchase order and the supplier requires additional fees for its delayed performance. It is often determined by the terms of suppliers’ purchase orders, which may define different material costs for different performance periods. When the work being performed is extended into a higher cost period due to a delay, the additional cost of materials can be included in the escalation claim. Equipment escalation for owned equipment is calculated in the same way that labor escalation is calculated. For leased or rented equipment, it is determined according to the terms of a purchase order in the same way that material escalation is calculated. Subcontractors’ costs can escalate and become part of the general contractor’s claim, the general contractor’s cost for subcontractors can increase, or the general contractor’s cost to perform the subcontractor’s work may increase


if it is required to take over the subcontractor’s work when the subcontractor is prevented from completing the work due to delays.

Lost Profits Even if anticipated profits cannot be proved without absolute certainty, if they can be proved to be reasonable, the contractor can recover lost profits for the project that has been delayed as well as for future projects that the delay prevented the contractor from obtaining. For example, in Tempo, Inc. v. Rapid Electric Sales & Service, 12 Mich. App. 93, 347 N.W.2d 728 (1984), the court accepted the contractor’s evidence of lost profits as reasonable certainty when the electrical contractor testified that the general contractor’s dispute caused it to lose bonding, which prevented the electrical contractor from being able to bid on jobs and caused it to lose $26,250 in lost profit. The amount of lost profit was calculated by determining which jobs the electrical contractor would have bid on during the period of the dispute and assuming one of every three or four bids would have been successful at a projected profit margin of three percent. Courts have not allowed contractors to recover lost profits on other potential contracts if the profits were too speculative, if the contractor could not establish that it would have been the successful bidder on any proposals, if the contractor could not prove that the delays on the project for which work was performed prevented it from obtaining work on other projects, or if the contractor was unable to obtain additional bonds because of its performance on other projects unrelated to the disputed project. When work has not been completed, lost profits are calculated as the contract price less any payments made by the owner on the contract less the contractor’s cost to complete the project in accordance with the contract, if it was to complete the project. Field and Home Office Overhead Costs Delays can also impact field and home office overhead expenses. Field overhead costs are project specific and may include such costs as trailer rentals, electrical power, water, telephone, fax, and postage, or such additional costs as project managers, and superintendent and support staff. Home office overhead includes the salaries of executive or administrative personnel, rent, insurance, utilities and phone, automobile and travel expenses, advertising, interest on loans, bad debts, and bids and proposal costs. The issue of home office overhead has been a contested one eliciting much debate. For example, the Federal Acquisitions Regulations (FAR) does not allow recovery of some of the costs mentioned above, such as interest on loans, losses on other contracts, bid and proposal costs, and bad debts. Because home office expenses are not project specific but are necessary to support all company projects, U.S. Courts and Boards have accepted the Eichleay Formula to calculate the home office costs. The Eichleay calculation apportions the home office overhead expenses to each project. During a delay period, unabsorbed overhead, such as fixed home office overhead costs, must be absorbed by the cash flow of other projects. Court decisions on the application of the Eichleay Formula focus on unabsorbed overhead rather than extended overhead. If there is a total suspension of work, overhead costs are unabsorbed. If there is only a partial suspension, some cash flow is present, and overhead costs are partially absorbed, or underabsorbed. Extended overhead costs are the additional costs incurred when the time for performing the work is extended beyond the completion date in the original contract. The formula developed by Eichleay mathematically demonstrates the ability to quantify the percentage of overhead inherent in the delay. Figure 8, “Steps to Calculate Overhead Costs with the Eichleay Formula,” shows the Eichleay Formula.


Fig. 8: Eichleay Formula In Step 1, the contract billings are divided by the total billings for all the work that the company had for the time period in question. The result is a simple, straight ratio of how much the contract work is in relation to all of the company’s work. Next, multiply that ratio by the total overhead for that period for the whole company. This yields how much overhead, in terms of dollars, should be allocable to that project. Then, that overhead that is allocable to that project is divided by how many days work was performed on that project. This yields the daily rate for the overhead associated with the contract. Finally, that daily rate is multiplied by the number of days of existing compensable delay. That calculation yields the amount of unabsorbed overhead that can be claimed. It is important to note that the Eichleay Formula is not applicable to every project. There are a couple of stipulations for its proper use. First, the contractor must demonstrate that the project delay did in fact increase the amount of home office overhead allocated in the contract. The contractor must show that there was additional cost that it should be allowed to recover. Second, the costs recovered through the use of the Eichleay Formula are not applicable for a time period that has been extended due to changes or additional work. For example, home office costs that were recovered through change orders during the affected period should be deducted from the Eichleay calculation so as not to recover those costs twice. No reduction in the Eichleay calculation should be necessary if home office overhead was not included in any change order during the unabsorbed period. For example, in Broward County v. Russell, Inc., 589 So. 2D 983 (Fla. App. 1991), the Florida Appellate Court allowed the Eichleay Formula to be used to recover the unabsorbed home office overhead caused by the owner. The contractor, Russell, Inc., alleged that the owner, Broward County, had delayed its work. The District Court of Appeals of Florida, Fourth District, concluded that, “it would join the jurisdictions that expressly authorize the use of the Eichleay Formula.” The Court emphasized that, before using the formula, “a contractor must prove that it actually incurred some under absorption of the home office overhead as a result of the owner’s delay.” This proof could be satisfied by showing that the contractor was not reasonably able to find replacement work.


However, in CBC Enterprises, Inc. v. United States, 978 F. 2d 669 (Fed. Cir. 1992), the U.S. Court of Appeals stipulated that the Eichleay Formula may only be used to compute unabsorbed home office overhead when the work is suspended, not when the contract time is extended by change orders. The contractor, CBC Enterprises, was awarded a contract by the Navy for improvements to a building at the Marine Corps Air Station, Cherry Point, North Carolina. A modification required extra work that amounted to $10,846 in direct costs and added 24 days to the contract time. The contractor calculated the extended overhead using the Eichleay Formula but the Navy only allowed home office overhead to be recovered at the rate stipulated in the contract—13.94%. The Board ruled that the Eichleay Formula may only be used to “calculate reimbursable home office costs in the event of suspension of work on a contract” and not for work covered by a change order. In another case, Appeal of Sippial Electric & Construction Co., Inc., ASBCA No. 43993 (November 12, 1992), the Armed Services Board of Contract Appeal denied the contractor’s claim to recover unabsorbed home office overhead. The Board ruled that the contractor, Sippial Electric & Construction Co., had not shown that its labor force had been unable to perform other productive work during the year of the delay. The contractor was awarded a contract by the Air Force for construction of a storage facility in Alabama. The Air Force directed the contractor to stop work due to a defective specification and thus delayed the project. The contractor submitted a claim to recover unabsorbed home office overhead costs but the Board ruled that “the unabsorbed overhead costs are not automatically recoverable for every government caused delay. [A]ppellant must show that the home office overhead costs were not properly absorbed and that, during the delay, labor forces could not be shifted to other work.” Nonrecoverable Delay Damages Damages due to delay that are deemed speculative and consequential are historically denied. These have included loss of credit line, loss of bonding capacity, and damaged business. For example, in Commonwealth Department of Transportation v. Cumberland Construction Co., 90 Pa. Commw. 273, 494 A.2d 520 (1985), the court rejected the contractor’s claim for destruction of business as a result of delayed progress payments that caused severe cash-flow problems. The court stated that the destruction of a business is not a normal or ordinary result of the failure to make timely payments and that the effect of the failure on the business affairs of another is ordinarily not foreseeable because the parties are not expected to know the condition of each other’s business. Other types of delay damages that have been rejected include the contractor’s costs of negotiating and processing subcontractors’ change orders, and the costs of pricing and settling a contract modification like a delay claim. Conclusion In order to prove a delay claim, the claimant must be able to provide evidence of the delay and its impact on the performance of the work. In addition, for a delay claim to be successful, the causal relationship between an event and the delay must be established by employing one of the schedule methodologies that can be used to determine delay. Lastly, proving damages due to delay is critical to the success of a delay claim and the claimant’s entitlement to recovery.

Documents

Construction Claims Delays