What Every Project Participant Needs to Know About Delay Claims

A “delay” on a construction project is defined as the stretching out of the time for completion of certain key milestone scopes of work which can impact the completion date of an entire project, due to some circumstances or events that were not reasonably anticipated when the project began. 2 Construction Law ¶ 6.01 (Matthew Bender, 2024). While delays can be caused by any number of events, the most common are defective plans and specifications; design changes; severe weather and other, similar unforeseeable events; unforeseen or differing site conditions; unavailability of materials or labor; labor inefficiencies or stoppages; contractor negligence; and owner influences, including construction changes or outright interference by the owner or its agents. If the project schedule is not recovered following a delay, then the project schedule will likely be extended, resulting in an increase in the contractor’s costs of performance.  A contractor that has experienced a delay on a project can take certain actions to pursue recovery of any damages the contractor may have incurred.  However, to do so it is important to understand the different types of delays and the methods for establishing the delays.

I. Types of Delays

Delays may be categorized as (1) critical versus non-critical delays, (2) excusable versus non-excusable delays, and (3) compensable versus non-compensable delays. A critical delay is a delay that affects the project completion date and delays the entire project. In essence, a critical delay is one that will extend the critical path of a project.  A non-critical delay is a delay that has no effect on the project’s critical path. Courts have recognized that delays to work not on the critical path will generally not delay the completion of a project.  G.M. Shupe, Inc. v U.S., 5 Cl. Ct. 662, 728 (1984).  Such a non-critical delay may affect the completion of certain activities, but does not affect the completion date of the entire project. In order for a delay to provide the basis for a claim for additional time or money, the delay must impact critical path activities on the project schedule.

In addition to determining if a delay is a critical or non-critical delay, it is important to determine if a delay is non-excusable or excusable. An excusable delay is a delay that is unforeseeable and beyond the control of the contractor and often allows a contractor to recover an extension of time, an increase in the contract sum, or both. In contrast, a non-excusable delay is a delay that is foreseeable or within the contractor’s control. Obviously, the distinction between these two is significant in that it determines which party is liable for the delay and dictates whether a contractor is entitled to additional time (and possibly money) or may need to compensate the owner for the delay. To prove its entitlement to delay damages, the contractor is typically required to maintain some form of reliable schedules if the parties desire to hold one another accountable for delays and ultimately determine the party responsible for the delays.

Contractor-caused delays typically entitle the owner to recover damages, such as any liquidated damages, or to terminate the contract for the contractor’s material breach in having delayed the project. Likewise, because the contractor is responsible for the delay, the contractor will not be entitled to either additional time or additional compensation for its own costs or damages associated with the delay. In fact, a contractor dealing with a non-excusable delay routinely will have to accelerate its work, at its own expense, to avoid delaying the project.

Excusable delays are usually caused by conditions that are reasonably unforeseen and not within the contractor’s control. In other words, an excusable delay is usually one not due to the contractor’s negligence. The most common example of an excusable delay usually falls under a force majeure clause and may include fire, floods, earthquakes, natural disasters, owner changes, errors or omission in the plans and specifications, differing or unforeseen site conditions, and acts of governmental bodies.

For a delay not set forth in or addressed in the contract to be excused, it normally has to fall within one or both of the following categories: “(1) the delay resulted from interference with the contractor’s performance by the owner or those for whom the owner is responsible; or (2) the risk of the delay was not expressly or impliedly assumed by either party to the contract.”  2 Construction Law ¶ 6.09 (Matthew Bender, 2024).

After determining that a delay is an excusable delay, you have to determine if it is a non-compensable or compensable delay. A good place to start is to analyze the controlling contract language as it will usually include terms as to whether a delay is compensable or non-compensable. Non-compensable delays are delays for which the contractor is entitled to a time extension but not entitled to additional monetary compensation. Neither party is responsible for the damages incurred by the other party. Thus, both parties assume their own additional costs arising out of the delay. Such delays are typically addressed in the context of force majeure clauses.

Compensable delays are delays to the critical path that are unforeseeable and beyond the contractor’s control or fault, for which the contractor is entitled to a time extension and additional compensation. Determination of the critical path is necessary for determining if a delay is compensable because only work on the critical path has an impact upon the time in which the project is to be completed.  LCC-MZT Team IV v United States, 155 Fed. Cl. 387, 458 (2021) (citing Ultimate Concrete, LLC v. United States, 141 Fed. Cl. 463, 480 (2019)).

Courts have held that a critical path delay is compensable if it was entirely caused by events within the other party’s control.  Cobb Mech. Contrs., Inc. v. Morganti Grp. Inc., 2007 U.S. Dist. LEXIS 108103, *11 (S.D. Texas, Aug. 4, 2007). However, if a general contractor is unable to prove that the owner was responsible for the event(s) that caused the delay, then the delay is excusable but normally non-compensable.  Houston v. R. F. Ball Constr. Co., 570 S.W.2d 75, 77 (Tex. Civ. App. – Houston [14th Dist.] 1978, writ ref’d n.r.e.   In general, a compensable delay is caused by the owner or its agent, but could also be caused by “no fault” events, such as acts of God and the like. Depending upon the controlling contractual terms, compensable delays may include circumstances, such as a changes to the design or the contract terms; a suspension of work; inability to provide site access; untimely review of submittals, shop drawings, or responses to RFIs; delayed issuance of the notice to proceed; defective plans and specifications; and, differing site conditions.

II. Methods of Proving Delays

When a party experiences a delay and has determined that the delay is an excusable and compensable delay, the party must then determine how to properly analyze and quantify the damages associated with the delay. There are multiple methods for proving delays and each has its “pros” and “cons.” Attorneys must be sure that the method chosen is best for the available facts and data surrounding the delay and that the analysis will be accepted as reliable and credible by those that ultimately review the claim regarding the delay (i.e. the court or the arbitrators). Some of the common methods of delay analysis include (1) the Total Cost Method, (2) the Modified Total Cost Approach, and (3) the Measured Mile Method.

    A. Total Cost Method

In general, the Total Cost Method is a process whereby you subtract the contractor’s bid estimate from the total of all project costs incurred and seek recovery of the overrun as the damages caused by the delay. While it is one of the simplest methods for calculating delay damages, it carries the least amount of weight with those opposing delay claims as it does not eliminate the fact that the party seeking the delay claim may have been responsible for some of the delay.  Additionally, it has also been disfavored due to concerns about bidding inaccuracies. Servidone Constr. Corp. v. United States, 931 F.2d 860, 861-62 (Fed. Cir. 1991) IMany courts, such as the one in Servidone, are openly critical of the Total Cost Method and have even noted that the Total Cost Method should be used with caution and as a last resort.

    B. Modified Total Cost Approach

 

The Modified Total Cost Approach is preferred over the Total Cost Method as it eliminates the sole reliance on the contractor’s original estimate by taking into account deficiency or performance issues caused by the contractor and factoring in non-compensable delays such as Acts of God. Courts have explained that when using the Modified Total Cost Approach, safeguards must be used to ensure that the burden of excess expenses falls on the party responsible for those expenses. Raytheon Co. v. White, 305 F.3d 1354, 1366 (Fed. Cir. 2002). In Raytheon, the Federal Circuit has clarified that a plaintiff utilizing a Modified Total Cost methodology must prove that (1) the nature of the losses make it impossible or highly impracticable to determine them with a reasonable degree of accuracy; (2) the plaintiff’s bid or estimate was realistic; (3) its actual costs were reasonable; and (4) it was not responsible for the added expenses. If a plaintiff is successful, the plaintiff may recover the total cost of the contract minus the bid price with various adjustments for delays the contractor caused or any miscalculations. Propellex Corp. v. Brownlee, 342 F.3d 1335, 1339 (Fed. Cir. 2003).

    C. Measured Mile Method

 

The Measured Mile Analysis is the preferred method for calculating lost productivity and delay damages. It is a technique whereby an unimpacted period or area or activity of construction work is compared with another period or area or activity of construction work that has been disrupted, the assumption being that the difference between the labor or equipment hours expended per unit of work performed in the unimpacted and impacted periods represents the loss to the contractor due to the impact or disruption for which another party is responsible. United States ex rel. Salinas Constr., Inc. v. W. Sur. Co., No. C14-1963JLR, 2016 U.S. Dist. LEXIS 88267, at *9 (W.D. Wash. July 7, 2016). It is often said to be the preferred method of proving damages as it has the ability to isolate the productivity loss during an impacted period from other project factors.

Contractors will eventually incur some type of delay on a construction project. Thus, it is important to understand the different types of delay and whether or not a delay is compensable.  At the same time, it is also important to understand the different delay claim methodologies to understand what information and project documentation will assist in proving entitlement to recovery for damages due to delays. While you may eventually have to retain a delay expert to assist with the claim, it is important to understand delays and delay claims so that you can proactively support any such claims.

Author Andrew G. Vicknair is an attorney with D'Arcy Vicknair, LLC in New Orleans, Louisiana. Andrew focuses his practice on construction litigation matters and regularly handles claims related to construction defects, payment disputes, design issues, and general disputes among subcontractors, owners, and general contractors.