October 1, 2012 by Matthew Swanson and Krista Johanson
A major challenge for all parties involved in a construction project is managing the schedule.
Delays, if they occur, can result in increased expenses, compromised profits or other losses. Where there is delay, compensation may be available. However, because delay claims are sometimes viewed with suspicion, compensation claims must often proceed to litigation, which is costly, time-consuming and uncertain. Therefore, owners and contractors who contemplate making a delay claim, or who are faced with the prospect of defending one, should be familiar with the key elements of such claims.
What is a compensable delay?
Whether a particular delay can form the basis of a claim depends on the terms of the contract and the nature of the delay. Generally speaking, to be compensable, a delay must disrupt the progress of the project or an aspect of supply to it, such that an extension of time is required. A merely ‘troublesome’ delay is insufficient. The delay must normally affect the project’s critical path. Common examples include: late performance of contractors, late supply of materials and design changes.
It’s important to note that parties to construction contracts can try to limit the types of compensable delays. One mechanism for limiting or excluding delays is a “No Damages for Delay” clause. Such a clause prohibits parties from seeking compensation for delay, while still allowing extensions of time. No Damages for Delay clauses may be broad, excluding from compensation all types of delay, or they may be limited to certain instances of delay. One common clause prohibits seeking compensation for delays caused by extreme weather, natural disasters (such as floods or earthquakes), labour strikes or acts by governmental authorities.
A contract may also include a provision requiring a party to give notice of its delay claim within a certain time period. Providing notice may be a pre-condition to making a claim, such that a failure to give notice may preclude the claim.
Proving or defending a claim requires good evidence and analysis.
As with any claim, it’s the party who advances the claim that has the onus of proving that there has been a delay, and that such a delay is compensable. Proof of a delay claim includes not only proof of
the delaying event, but also the direct and indirect costs that were incurred as a result.
One of the first steps in advancing or defending a claim involves gathering all of the relevant construction schedules, including preliminary schedules, revised schedules and as-built schedules. Other project records should also be compiled, including: labour records, site diaries, minutes of site meetings, invoices for delay-related costs and any correspondence related to the alleged delay events.
Once the schedules and project records have been compiled, they must be analyzed, often by a delay claims consultant, so as to determine whether an alleged delay event has affected the project. The claimant will have to establish that the events of delay have caused compensable losses, such
as: increased financing costs; increased bonding costs; loss of profit; productivity costs and/or additional overhead. That said, in some instances, the parties will have lessened this burden by including liquidated damages provisions in their contract. Such provisions generally provide that where a delay event is attributable to a contractor, the owner may recover damages at a certain predetermined level, often expressed as a fixed amount per day of delay.
Follow best practices
Parties to construction contracts are well advised to turn their minds to these issues before a delay ever arises. Best practices include good record keeping, so that if one must assert or defend a claim, the necessary documents are available. The basic elements of the contract relating to delay claims, and especially notice, must be understood so as to ensure compensable claims are being advanced and defended properly. Advice should be sought early.
This article is provided for general information only and may not be relied upon as legal advice. Matthew Swanson and Krista Johanson are associate lawyers at Borden Ladner Gervais LLP (BLG). They practice in the area of commercial litigation with an emphasis on contract and construction disputes. Send comments to email@example.com.