Introduction:
There are two elements of construction projects that seem almost inevitable: change orders and delays. This article shall discuss the legal issues that can arise due to delays in the construction project that both the contractor and the owner must understand fully to minimize the disruption and avoid (or win) litigation that may erupt.
Many construction contracts have provisions that protect the owner from the economic effects of delay by either awarding damages, imposing penalties on the contractor if the contractor is at fault, or requiring the contractor to accelerate performance so that the delay is minimized or eliminated.
Note that in most cases delays can impose a ripple effect on the entire project. When a contractor is delayed, so are the other trades on the project as well as the architects and owners. One delay and the damages caused to a contractor or owner quickly can be enlarged due to the effect of delays causing damages to a dozen other contractors, each with their own set of damages and problems.
As an example, a delay in the installation of the plumbing can result in the electrical installation being delayed since plumbing must go in first, thus drywall installation being delayed as well as painting. A delay in laying the foundation can delay every other trade. What would be damages in the tens of thousands can quickly evolve into damages in the hundreds of thousands or millions.
What happens when you need to pick up the pace on a construction project in order to make up for lost time? To catch up to the schedule (or at least to get close to it), the timeframe must be accelerated. But accelerating a timetable costs money. And that’s where acceleration claims become critical.
The Basics:
Acceleration Claims in Construction:
Acceleration claims are claims for payment that are made due to the costs derived from speeding up work. These claims often consist of overtime payment, compensation for increased scope of work, change orders, supplementing the workforce, hiring more management, costs of speeding up the delivery of materials, and more. When work must be accelerated during the life of the project, the compensation for that acceleration leads to acceleration claims by the parties performing that task.
Acceleration happens for various reasons. Further, the ability to recover the cost of accelerating work will depend, in part, on why the work is being accelerated. There are three broad categories of acceleration: Voluntary Acceleration, Directed Acceleration, and Constructive Acceleration.
- Voluntary Acceleration
Voluntary acceleration occurs when the contractor decides to accelerate their work voluntarily. It can be based on events occurring on other jobs; it can be to avoid anticipated damages or penalties if the job cannot be finished during the period specified in the contract.
When acceleration is undertaken on a voluntary basis, a contractor will normally not be entitled to claims or damages based on the cost of accelerating work. It was their own decision to speed up performance even if done to avoid later damages. When voluntary acceleration occurs, it is likely that there will not be additional compensation for the acceleration. Note that if the acceleration somehow throws off other workers on the job, they may have claims against the voluntary accelerator unless all the acceleration does is keep on the previously scheduled performance.
- Directed Acceleration
This type of acceleration occurs when a contractor is directed to accelerate the project schedule. Since directed acceleration is performed at the direction of the owner or general contractor. This, in turn, may be caused by two reasons: a direction to speed up to conform to the original schedule, in which case additional compensation to the party is unlikely unless the delay is not its own fault. A second reason is the contractor or owner wants to speed up the contract for its own reasons and in that case, compensation will be made in exchange for that acceleration. Often this is accomplished through formal change orders and there should be less question as to where the money will come from to pay for acceleration.
- Constructive Acceleration
Constructive acceleration occurs as a result of the situation on the job site. Constructive acceleration generally occurs when the contractor faces an excusable delay, then that contractor requests an extension of time. If that extension request is refused and the contractor must instead accelerate work to catch up with the project schedule, then the contractor has undertaken a constructive acceleration. Constructive acceleration can take many forms, as discussed below.
This type of acceleration is more complex and heavily dependent on the overall situation. Typically, constructive acceleration occurs when the contractor incurs excusable delays and submits a request for an extension, but the owner rejects the request and continues to hold the contractor to contractual deadlines. Thus, the contractor’s only option is to accelerate work to meet the schedule.
To distinguish constructive acceleration from voluntary acceleration, the contractor must demonstrate and prove five conditions established by the General Services Board of Contract Appeals:
the contractor has experienced a period of excusable delay under the contract;
the contractor requested an extension of the contract schedule in a timely and sufficient manner;
the owner denied the contractor’s request or did not respond within a reasonable time;
the owner’s demand for completion within the original performance period (or earlier than the entitled period of excusable delay); and
the contractor incurred additional costs for acceleration efforts.
Note that delays need not be compensable, only excusable, to serve as the basis of the contractor’s constructive acceleration claim to recover additional costs.
The Mechanics of Making a Claim:
The method is determined by the different types of acceleration.
- Voluntary Acceleration Claims
These claims are seldom worthy of compensation due to their voluntary nature. This can be a rude awakening for a contractor who ignores the difference between a directed or constructive acceleration and simply increased the speed of performance on his or her own volition. Because it costs more does not mean the owner must pay it.
- Directive Acceleration Claims
Claims for directive acceleration should have the least issues with being paid since the acceleration was explicitly ordered. With everyone on the same page, there should be little to argue about – acceleration was needed, it was undertaken, and it must be compensated. Naturally, there may still be a dispute over exactly what’s owed and by whom. The key here is to have a clearly written and executed change order for the additional costs. Otherwise, a dispute over how much is voluntary and how much directed is quite possible as a part of the performance was not contemplated by the owner in the directive. Owners may not understand the full ramifications and costs of acceleration and the wise contractor will explicitly itemize precisely what is to be paid for in the written and executed change order.
- Constructive Acceleration Claims
Because constructive acceleration claims exist in the grey area between directive acceleration claims and voluntary acceleration claims, much litigation derives. A customer might argue their contractor wasn’t entitled to accelerate, and the contractor might argue that accelerating the project was their only choice.
When this dispute occurs, there are some criteria courts and arbitrators normally consider important such as whether the owner knew of the delay, made a statement or action that could be interpreted as an acceleration order, and was the contractor provided or did he provide a notice or acceleration, so all parties knew this was anticipated. Often, the ability to make a constructive acceleration claim will center on the process by which constructive acceleration was undertaken.
/1/ Constructive Acceleration Processes
- Excusable Delay
To establish a claim for acceleration damages it is vital to have an excusable delay occur on the project. An excusable delay is one that was not foreseeable at the time of contracting and that was caused by something outside the contractor’s control. This can include anything from owner change orders, poor weather conditions, natural disasters, shortage of materials, failure of another contractor to perform, or some other unforeseeable and unplanned event.
- Request for Time Extension
If the delay disrupts the project schedule, then the contractor should request an extension of time to perform in writing. Most contracts will require that requests must be in writing. This formal request is critical. Just hoping an extension is acceptable and reasonable and need not be agreed to beforehand will create problems when the customer realizes the project is finishing behind schedule or is given a larger bill. On the other hand, if a contractor assumes an extension will not be granted, and just accelerates, it is quite likely that the contractor will not be able to recover the cost of that acceleration. So, what may have been a constructive acceleration (or even a directed acceleration) would become a voluntary one.
- Denial of Time Extension
If the request for extra time is denied or ignored, a contractor may decide that the schedule must be accelerated. After all, without confirmation that the schedule can be extended, the contractor may still be bound by the original completion date in the contract.
- Acceleration Order
This is a clear instruction from the owner or, if implied, actions that would constitute the same. An express acceleration order is when the customer explicitly directs their contractor to accelerate performance through a formal change order.
An implied acceleration order is the opposite – no direct order was given, but based on the circumstances, the order to accelerate can be implied by the parties’ actions. Generally, constructive acceleration is implied. If acceleration has been directly ordered, it’d become directive acceleration. By denying a time extension but making it clear that your work needs to be completed on schedule, and agreeing it is not the contractor’s fault, a customer is more or less ordering their contractor to accelerate performance.
Damages Caused by Acceleration:
The contractor must be able to prove that they accelerated performance and encountered increased costs or/and damages due to accelerated performance. Achieving the hoped-for date of performance completion is not required if the contractor can prove that they attempted in good faith to meet the original contract completion date and incurred costs via acceleration.
- Acceleration Claims Due to Insufficient Extensions
At times the customer does grant a time extension, but for an insufficient amount of time to compensate for the added costs. Written notice to the owner is immediately necessary and the notice should include the reasons why the extension was inadequate, a description of the work and anticipated costs, and reserve the right for additional compensation as a result. The situation is almost identical to the issues involved in asking for the initial extension.
- Could a ‘No Damages for Delay Clause’ Block Acceleration Claims?
A ‘No Damages for Delay Clause (“NDFD” clause) is a relatively common clause in construction contracts. The purpose of this clause is to relieve a party from liabilities they may incur due to delays on the project. Usually, an owner/GC is liable to pay for any additional costs associated with delays caused by themselves. But with a No-Damages-or-Delay clause, the contractor will be responsible for any increased costs caused by said delay.
Note there are certain types of delays that will not be covered by an NDFD. Particularly, delays caused by a breach of contract, delays caused by active owner/construction manager interference, unreasonable delays, or delays resulting from fraud or bad faith. These clauses will generally refer to time-related damages, but if a valid time extension is denied, and more time is required, acceleration costs may still be recoverable.
Risks of Schedule Recovery via Acceleration
A contractor can accelerate a schedule using one of two typical methods:
Activity crashing: shortening the duration of a task by adding more resources or costs.
Activity overlapping: performing activities in parallel instead of in sequence, as planned.
While crashing the activities naturally increases the direct cost due to the cost of extra resources, higher overtime rates, and any other methods needed to reduce task duration. But there are other less direct costs to be considered.
- Additional crews on a regular shift, overtime rates, and multiple shifts may result in higher costs since they tend to reduce productivity. This is called “Impact.” Studies on the effects of overtime on construction labor productivity have consistently demonstrated an inverse relationship between the amount of overtime work and labor productivity.
- Furthermore, the longer that overtime schedules are relied upon to recover from delays, the more likely it is that further reductions in worker productivity will be observed. As overtime continues, crew exhaustion may further reduce overall productivity rates by as much as 30-40% within two or three months. Overstaffing and crowding of work areas both negatively affect productivity.
Overstaffed crews dilute supervision, increase strain on equipment/material demands, often overcrowd spaces, reduce morale, and interfere with the movement of materials and equipment.
Activity overlapping, on the other hand, often introduces added risk and greater uncertainty to the project plan. For example, starting a successor activity while the predecessor is still in progress increases the likelihood of an impact on the successor activity should a change or rework be required on the predecessor activity. Any changes in the predecessor activity will likely produce rework for the successor task and may prolong the duration of the successor task beyond what would have been necessary had the same rework been performed as originally scheduled.
For example, if a mistake or change was made in the progress of roughing in walls but affected areas have already been enclosed due to activity overlapping, the impact of rework will now include the removal and reinstallation of drywall as well as the correction of the rough-in work. Therefore, overlapping may not ultimately be as efficient as expected because of uncertainties that create additional work and delays.
Furthermore, the overlapping of activities can have the same productivity impacts observed with increasing crew sizes for individual activities. Having activities occur in parallel may result in crowding and congestion in project areas with limited space or access and in turn, decrease productivity. Due to the complexity and uniqueness of each activity on each project, overlapping should be considered carefully, with a greater focus on preemptive coordination to detect possible issues before they manifest as additional delays.
Most trials and arbitrations have experts who have developed excellent analyses and graphs showing the general effect of impact and acceleration.
Records are Critical
Segregating self-inflicted damages from those solely attributable to the required acceleration efforts requires detailed cost and schedule data as well as sufficient notice documentation. The difficulty demonstrating entitlement and proving damages directly associated with implied acceleration orders reiterates the importance of proper record-keeping for schedule updates, communication with the owner, and cost tracking. The level of detail of these records greatly influences the chances of recovery as well as decreases the cost associated with pursuit. This often comes when the contractor is already pressed for time due to delays and the need to retain additional skilled personnel. Nevertheless, absent good records and notice, recovery will be difficult.
Conclusion
Impact and acceleration are real and can radically alter the costs and efficiency of the construction. It is absolutely vital for any contractor to be fully advised, to keep excellent records and proof of costs, and to communicate clearly and often with the others on the project. The more complex the project, the greater likelihood of these issues arising.
As an owner understand that regardless of the contract, it is always possible to encounter such claims the moment a job is delayed, or one contractor fails to perform in a timely manner. Having written change orders is vital to avoid later conflicts and expensive litigation.