Construction Delay Analysis Methods
Delay is one of most
common problems in construction projects resulting in construction disputes and
claims. Basically delay is the time overrun either beyond the completion date
specified in the contract or beyond the agreed-upon date for delivery of the
project. Most large projects are
completed later than these agreed-upon dates for a number of reasons. These delays can have severe financial impact
on the project. Basically delays are a
net loss situation: All the parties lose
one way or the other and there are no real winners. Reputations are at stake as well.
When disputes erupt, delay
claims may be filed, unless compromises are reached. To recover the damage caused by delays,
both the delays and the parties responsible for them should be identified. However, delay situations are complex in
nature because multiple delays can occur concurrently and can be caused by more
than one party, or by none of the principal parties (force majeure, etc.). As a
result contract schedule and payment dispute are becoming two most common items
of dispute during the construction phase.
What is Delay Analysis?
Delay Analysis is an investigation (usually forensic)
into what has caused the project to run late and who is responsible for the
delay events. Delay analysis is
performed in three steps:
1. Investigation Phase
(evidence collection);
2. Description Phase
(analysis of facts collected during phase one);
3. Presentation of the
case to an arbitrator or jury to prove the claim
Most of these delay
claims reach the expert after completion of the project. The analysis of the delay impact with the
causes and effects of the delaying activities is one of the most complicated
types of claims analysis. It requires an
expert with extensive knowledge of construction projects, means and methods,
scheduling and the ability to develop a sound methodology to conduct the
analysis. This results in interviews
with the parties, a detailed intensive review and research of the documents to
verify schedules, events, sequence of work, changes during construction and the
delay impact.
Organizational Chart
This article will
address these challenges and the various delay analysis methods.
Common Causes of Delays in Construction Projects
Below is a list of
common delay causes encountered on construction projects. One of the complications of a delay analysis
is that the delays can be caused by few of these listed causes or by concurrent
causes or a complex mix of these causes running concurrently or in sequence. The time of their occurrence and who caused
what delay add to the difficulty of the analysis.
Errors and omissions
in the contract documents:
·
Missing
information.
·
Not
having a phasing plan in the bid documents when the site work has to be done in
phases.
·
Conflicting
information that need design revisions.
Contractor caused
delays for reasons under their control:
·
Not
having enough labor force on site.
·
Contractual
problems between the prime contractor and subcontractors.
·
Cash
flow issues.
·
Lack
of proper planning and management of the project.
Delays for reasons
beyond the contractor or owner’s control:
·
Strikes
·
Out
of state manufacturer’s shut down.
·
A
subcontractor going out of business in the middle of the project.
·
Unusual
weather conditions.
Owner caused delays
for reasons under their control:
·
Scope
changes.
·
Limiting
contractor’s access to parts of the site.
·
Cash
flow.
·
Late
processing of contractor’s requests for clarifications and change orders.
·
A
higher level political factor that impacted the project’s progress.
Personality conflicts
between the project’s team.
·
Unfortunately,
sometimes this factor results in the team making things difficult on site that
cause delays. In this case each party blames the other for the delay.
One of the main steps
in the owner delay analysis is to research the project’s documents to identify
causes like the ones listed above that delayed the project. The methodology used to determine the impact
of these factors is the heart of the difficulty of this type of analysis. To better understand the level of difficulty
involved, please note the following basic concepts that have to be factored in:
Construction delay analysis
Types of Delays
Construction project delays can be classified according
to their origin into four groups:
1. Excusable
compensable (caused by the owner): For example, owner initiated changes in
work; architect or engineer supplied designs which are defective; work site is
not available to the contractor in timely manner, etc.
2. Excusable but not
compensable (neither the contractor's nor the owner's fault): For example, force
majeure; unusually severe weather conditions, etc.
3. Neither excusable
nor compensable (caused by the contractor or its subcontractor): For example, failure
of the contractor to mobilize work crews and start the work in timely manner;
improperly allocating labor, material, and other resources; lack of
coordination of subcontractors, etc.
4. Concurrent (delay
caused by multiple factors)
Excusable and
Non-Excusable Delays
Excusable delays
simply mean delays that are unforeseeable, beyond the control of the contractor
and they occur at no fault to the contractor. In this case a time extension is owed to the
contractor or a compensation if the delay caused him money. Excusable delays can be further classified
into compensable and non-compensable. Non-excusable
delays are delays due to the contractor’s fault and are within the control of
the contractor. The distinction
between these two is significant in that it determines which party is liable
for the delay. Similarly, it also
dictates whether or not a contractor would be entitled to a time extension and
possibly if the contractor would be entitled to compensation for that time
extension. A Non-Compensable
Delay normally encompasses such things as strikes, unusually severe
weather, acts of God, fires, floods, etc.
A detailed revision of the contract’s terms and conditions is critical
to properly classify the type of each delay identified in the analysis.
Compensable and
Non-Compensable Delays
Compensable delays
are delays where the delayed party is owed money to compensate for the loss due
to the delay. Normally a
compensable delay is caused by the owner. It may be caused by a direct change,
it may be caused by a suspension of work, or it may be caused by any of the
constructive changes. For a contractor to request both a time extension and
compensation for that time extension, he must demonstrate that the owner was
the cause of that delay.
Non-compensable delay
is a delay where a time extension is owed but no compensation is owed to the
delayed party. For example, some
contracts specify that delays due to reasons beyond the control of the owner
and the contractor are delays where a time extension is granted but no
compensation is paid to the delayed party. The theory is that neither the contractor
nor the owner has control over the Non-Compensable Delay. Therefore, both
parties assume their own additional costs. The contractor absorbs his delay
costs for being out on the project longer and the Federal owner absorbs its
cost normally in the form of the liquidated damages by granting a time
extension to the contractor and extending the contract. One might consider it a
form of a non-fault approach to delays. Neither party can control them and both
parties accept any extra cost resulting from them. A good understanding
of the contract terms is critical to the expert analyzing the delay claim.
Concurrent Delays
Concurrent, Owner and Contractor Delays
Some analysts simply
list the delays, calculate the number of days for each delay, add them up and
claim the total as the total number of delay days. This is far from being an accurate analysis.
The timing of each of these delays is important. We may have three delay causes that occurred
during overlapping time periods or within the same period. The schedule and the actual site events have
to be examined at the start date of each one of these delays to analyze its
impact. We may find that only one of the
three concurrent delays had an impact on the critical path of the project. After plugging that in the updated schedule,
we can find out the new completion date of the whole schedule.
Critical Path Method;
Critical, Non-Critical Delays and Float
The project
activities in a schedule are 2 types, critical and non-critical. The non-critical
activities have certain number of days (called “float”) where the activity can
be delayed without delaying the whole project.
For example five days float means that the activity can be delayed up to
five days without delaying the whole project.
The critical path can
be defined as the series of activities with the longest extended duration
representing the shortest time within which the project can be completed if the
construction proceeds as planned. The critical
activities have zero or less float which means that each day of delay will
delay the whole project by one day.
A schedule normally
shows a list of construction activities and durations for each activity, joined
together by "logical relationships." An activity can be any portion
of the planned work. Clearing, excavation, foundation, framing and roofing
would be examples. The duration is the expected length of time required for
each activity. The logical relationships between activities would identify
"predecessor activities" that must be complete before another
activity can begin and "successor activities" that must follow other
activities
Determining which
activities are critical and non-critical depends on the durations and logic of
the sequence of activities. Rebuilding
the schedule after the fact, determining which activities are critical and
which ones are non-critical and establishing the logic, which usually changes
through the project, takes a highly technical research of the documents. Some
assumptions and judgments may have to be taken during the analysis.
Application of the CPM to the Delay Dispute or Claim
Over the years, the
courts have rendered a number of decisions that clearly indicate that CPM based
scheduling delay analysis is the preferred method to analyze delay claims and
assign each parties responsibility for the delay. The California courts have
held that a bar chart can be used, but it must include some form of critical
path analysis. (See Howard Contracting v. MacDonald Contracting (1998)
71 Cal. App. 4th 38) In addition, the better drafted construction
contracts dictate that a CPM based schedule is the only evidence that will be
accepted to establish a delay.
As earlier article
have stated, four tests must be satisfied before recovery for delay costs will
be allowed— a contractor must prove that the delay was (1) excusable, (2)
compensable, (3) critical, and (4) non-concurrent. The third and fourth tests
require some form of CPM based schedule analysis.
In Wilner v.
United States (23 Cl. Ct. 241, 245 (1991)) the U.S. Court of Claims
discussed in detail the necessity for, and value of, critical path analysis in
order for plaintiff to prove a delay claim. The Court stated:
Each subproject is
identified and classified as to the duration and precedence of the work. (E.g.,
one could not carpet an area until the flooring is down and the flooring cannot
be completed until the underlying electrical and telephone conduits are
installed.) The data is then analyzed, usually by computer, to determine the
most efficient schedule for the entire project. Many subprojects may be
performed at any time within a given period without any effect on the
completion of the entire project. However, some items of work are given no
leeway and must be performed on schedule; otherwise, the entire project will be
delayed. These latter items of work are on the "critical path." A
delay, or acceleration, of work along the critical path will affect the entire
project.
In the another U.S.
Court of Claims case, (G.M. Shupe, Inc. v. United States, 5 Cl. Ct. 662,
728-30 (1984)) the Court stated:
A requisite for
government liability for the consequences of a critical path delay is fault on
the part of the Government. Courts will deny recovery where the delays [of the
Government and the contractor] are concurrent and the contractor has not
established its delay apart from that attributable to the government.
There are four
primary methods of analyzing a delay claim using a CPM schedule. All four
methods rely on some comparison of the as-planned schedule to the actual
as-built schedule or events. Two methods are primarily used after the project
is completed and two methods are used during the course of construction.
The first approach
requires a determination of which events the other party is responsible for and
then removing them from the as-built schedule by manipulating the scheduling
software. In essence, delays caused by the owner are removed from the schedule
then a comparison is made to the as-planned schedules completion date. This
method is used after the project is completed. If the collapsed as-built
completion indicates that the collapsed project completion date is equal or
less than the as-planned schedule the owner is responsible for the delays. This
method is referred to as the “collapsed” as-built schedule method.
The second method
involves a selection of specific time periods when major delays occurred for an
“as-planned” versus “as-built” comparison. Rather simply collapsing out the owner caused
delays, this approach involves a more in depth analysis of how each delay
period impacted the critical path activities. Once an analysis of the first
major delay is made, then those conclusions become the baseline for determining
how the subsequent delays impacted the project. This approach is used after the project is
completed.
The third method
involves modifying the “as-planned” schedule. The method involves either
modifying the as-planned schedule by modifying the schedule to reflect the
critical delays for which the owner is responsible or alternatively by
modifying the schedule to reflect the critical delays for which the contractor
is responsible. A comparison of the original “as-planned” schedule to the
modified schedule should indicate the number of additional days that are
attributable to the owner. This method is typically used before a project is
completed. It should be noted that the courts have questioned the validity of
such an approach since it fails to accurately measure the impact of the delays
on the critical path.
The fourth method
involves the use of fragnets, which are fragments of a CPM network. In
essence, new partial CPM networks are created for the periods or events that
are being evaluated. Once the fragmented portion of the schedule is completed,
it is then added into the current “as-built” schedule. At which point, an
evaluation of the delay can be made in relationship to the ongoing activities.
The fragnet approach is typically used during the course of construction.
Before a court will
accept whatever method is chosen, the proponent of the analysis method must be
able to establish that the approach identifies how the delay impacted the
actual completion of the project. By
definition, only those delays which delay the actual completion of the project
are on the critical path.
Using Critical Path
Method scheduling (CPM) provides analysts the needed tools to conduct a proper
analysis. To understand the tremendous
advantage of having CPM technology, please allow me to give you a brief idea
about basic principles of CPM scheduling.
Prior to CPM
scheduling, owners, contractors and any other businesses that needed schedules
like large manufacturers used scheduling techniques where activities were
listed and the sequence identified but the activities were not tied by logical
relationships. Therefore, any delay or change of schedule needed reconstruction
of the whole schedule. So, if we have a large schedule with hundreds of
activities, you can imagine the cumbersome process of updating the schedule,
say at 75% of the project or identifying the impact of a delay on the schedule.
The CPM method and
the relevant software give the user the ability to tie the schedule’s
activities by logic relationships. For example:
·
Activity
B shall start when activity A is completed.
·
Activity
C can start only when A and B are completed.
·
Activity
D will start 5 days after activity A starts.
A scheduler builds a
schedule by performing the following basic steps:
·
Define
the activities.
·
Assign
durations for each of the activities.
·
Identify
the predecessor and successor activities.
·
Allocate
the proper relationships similar to the described above.
·
The
software automatically performs the CPM calculations, displays the schedule,
gives you the completion date and identifies the critical and non-critical
activities.
The CPM scheduling
method helps the user do the following:
·
Update
the schedule and clearly note the change of the completion date.
·
Manipulate
the relationships and duration of activities to change the logic of the
schedule to recover a delay and bring back the completion date to a desired
date.
·
Insert
a delay factor to an activity and immediately read the new completion date.
·
Identify
the critical activities. These are the activities that don’t have any room
(float) for any delays. A 3 days delay on a critical activity delays the whole
project by 3 days unless the revised logic of the schedule dictates otherwise.
·
Identify
non critical activities. These activities have different amounts of float. A
float of 20 days means that this activity can be delayed up to 20 days without
impacting the whole schedule.
When the first
submitted schedule is approved, it is considered a base schedule for future
updates and delay analysis. That means the project manager needs to carefully
review the schedule and the critical path prior to approving the schedule. Some
of the elements that need careful review are:
·
Verify
that the start and completion dates of the whole project match the contract
dates.
·
Check
that the assigned durations are realistic.
·
Review
the logical ties between the activities.
·
Look
through the critical path and check what activities are critical.
·
If
the schedule show the phasing required.
Delay Analysis Methods
Having introduced all
these basic concepts related to delay analysis, please note below the different
methods that are commonly used to analyze delays:
·
As-Planned
vs. As-Built method; this is a
retrospective and actual fact-based analysis;
·
Impacted
As-Planned method; this is a perspective method and is a theory-based one;
·
Collapsed
As-built or “But for” method; this is a retrospective method, also
theory-based;
·
Window
analysis method; this is a retrospective and actual-fact based method;
·
As-Built
method
·
Contemporaneous
method; this is a retrospective and actual-fact based method;
·
Time
impacted analysis method; this is a perspective and actual-fact based method;
·
As
planned but-for method; this is a perspective and theory based method;
·
Net
impact method; this is a retrospective and theory-based method;
·
Global
impact method; this is a retrospective and theory-based method
The
Global Impact and Net Impact approaches are considered completely illegitimate
techniques, and if used to claim a time extension, should be rejected on grounds
that they make conclusions on the effect of delays without considering any project
logic. The remaining six techniques all
use the CPM approach to scheduling, although some techniques use it more
efficiently than others do.
As-Planned Vs.
As-Built Method
The analyst compares
the dates and durations of selected activities shown on the as-planned schedule
with the actual dates and durations on an as-built schedule and considers the
difference to be the delay on the job.
The main advantage of this method is that it is simple to understand,
easy to use, simple and inexpensive.
However, this is a very simplistic view of the delay claim because it
ignores the following important factors:
·
The
cause of the delays.
·
The
timing of the individual delays and their impact on the schedule to be able to
attribute the correct amount of delay days to the right responsible party.
·
It
ignores the impact of concurrent delays; it cannot handle complex delay
situations.
·
It
ignores the fact that the logic and sequence of the as-planned schedule may
have changed through the project due to numerous delaying factors.
Impacted As-Planned
Method
In this method the
analyst lists the excusable delays (or delays where time extension is owed to
the contractor) and inserts the extended duration to the relevant activities. The analyst reads the revised completion date
and calculated the days between this date and the as-planned completion date
and determines that these are the number of days owed to the contractor. This method can be used to show the potential
delaying effect of the owner’s delay, or contractor’s delay, or both
together. It can also be used for
what-if analysis to predict possible delays.
The sources of error
in this method are:
·
It
ignores the actual as-built schedule and events on site.
·
If
the delay events are added to the planned schedule in a different order,
different conclusions can be drawn.
·
It
assumes that the logic of the as-planned schedule reflect the reality on site.
·
It
requires an accurate and realistic as-planned baseline schedule.
·
It
ignores the inexcusable delays that may have been concurrent to some of these
inserted delays which impacts the number of days owed to the contractor.
·
Since
the analyst is only using the as-planned schedule, this method doesn’t
incorporate changes in logic and out of sequence work.
Global Impact Method
This method requires
planned schedule (not necessary based on Critical Path Method), list of delay
events caused by one party (owner, for example) with known durations. It is a retrospective schedule impact analysis
technique that plots all delays on an as-built bar chart, equating the total
delay to be the sum total of the durations of all delaying events. The application procedure is as follows: the owner-caused delay periods are simply added to the end of the
planned completion date, and then the actual completion date is compared with a
calculated date. If the latter is equal
or later than actual completion date, the contractor is entitled to full
extension of time.
The advantages of this
method are that it is simple to use and no CMP is required.
The disadvantages are that
concurrent delays are ignored in this method; the types of delays are also
ignored; and it assumes that all delays affect project completion.
Net Impact Method
This method is the same as Global Impact Method except here we are also considering the issue of
concurrency of delays. It is a retrospective schedule impact analysis technique
that attempts to justify time extension by showing all delaying events on an
as-built bar chart, claiming total project delay is the claim for time
extension. The method requires planned schedule and a list of delay events caused
by one party. If two or more listed
events happened at the same time, only the longest one is considered.
Calculations procedure is the same as for Global Impact Method.
As-planned “But-For” Method
Set of delay events related to one party is added into
the planned baseline program, and then the impacted completion date is compared
with the as-built completion date, and the difference is said to be how much
earlier the project could have finished but for all other events (imposed by
the other party) but which have not been analyzed.
Advantages:
• No need to consider
actual progress of works (only completion date);
• Can be used to show delaying effects for different types of delay;
Disadvantages:
• Requires an
accurate and realistic As-planned program;
• Requires all
information to be analyzed at one time;
• It is a theoretical investigation;
• Drawn conclusions are different depending on perspective of analysis
Collapsed As-Built
“But For” Method
In this method the
analyst takes the actual as-built schedule and takes out the duration of all
the excusable delays (delays rightfully owed to the contractor). This revision
forms the collapsed as-built schedule. The analyst reads the completion date on
the collapsed as-built schedule and considers this date to be the completion
date of the project had the contractor not been delayed. The analyst calculates
the days between the collapsed as-built and the completion date from the
as-built schedule and considers these days to be the days owed to the
contractor. The sources of error in this method are:
·
It
depends on the as-built schedule to be accurate.
·
The
excusable delays removed from the as-built schedule are assumed to be excusable
without a complete analysis of these delays, the causes and concurrencies. That
means subjective assumptions and judgments have been taken and need to be
examined.
·
It
doesn’t factor in how the sequence of operation changed, any acceleration that
took place, any recovery that took place because the as-built schedule is a
representation of what really happened on site without addressing causes and
effects of delays along the way.
·
In
some cases, where an as-built schedule does not exist, the analyst recreates
the as-built schedule based on his/her research. This product does not reflect
the planned logic of activities or the planned critical path.
Window Analysis
Method
The method follows
the same basic philosophy as the as-planned versus as-built method. This method is based on analyzing the delay
over the entire schedule dividing it to windows with a selected duration, most
commonly used is monthly. The analyst looks at the activities within the
selected window, updates the activities incorporating the delays within the
selected window. Updating the selected window changes the as-planned schedule
to an as-built schedule up to the end date of the selected window and becomes
the basis for projecting the remaining activities from the end of the window to
the completion of the project. The sources of error in this method are:
·
Need
to have accurate as-built information on the start and finish dates of the
windows.
·
The
original base schedule has to be accurate.
·
There
may be delaying activities outside the selected window that have an impact.
Time Impact Analysis
Time Impact
Analysis
This method is a combination of the window technique
and as-planned impact method. It concentrates on delay events and applies them
to as-planned model on window by window.
The major distinction between the windows/snapshot and the time impact
analysis is that the former is a retrospective analysis looking back at what
actually happened and the latter is a prospective analysis looking into the
future and assessing what might have happened in terms of delay. The Window and Time Impact Analysis share
almost same advantages and limitations.
Advantages:
·
Methods are dealing with changes in project
planning and execution;
·
Can be used during the currency of the works as
well as for retrospective analysis;
·
Consequential
delays, concurrency, criticality, and acceleration are taken into account;
·
The paucity of activities in each “window” makes
analysis easier and results more convincing;
Conditions
and Disadvantages:
·
As each “Window” must be updated regularly complete
detailed records are needed;
·
Choosing the impact period is subjective;
·
Complexity.
Window Analysis Method
As-Built Method
This method is used
in the absence of reliable schedules on the job. In this case the analyst
recreates a schedule based on actual information. The analyst determines the
logical ties between the activities to form a retrospective schedule which
becomes the basis for analyzing the effect of the delays. Durations are given
to the activities based on reasonable time to finish the various activities.
The delays are then inserted in the newly created schedule and then compared
with the actual as-built durations to calculate the number of delay days. The
sources of error in the method:
·
The
analyst has to be very experienced in construction means and methods.
·
There
is a lot of judgment calls by the analyst that need to be examined.
As-built but-for schedule analysis
Contemporaneous
Method
This is usually the
preferred method of analyzing delays. In this method, the analyst takes a look
at the schedule and actual site progress on the starting date of each delay,
and then inserts the delays in the schedule. The new completion date is compared to the
original completion date to determine the delay days. This way the impact of
concurrent delays is incorporated, the new critical path reflects reality on
site and effect of the delaying causes. The sources of error in this method:
·
Having
good documentation to reflect the actual site progress.
·
Accurate
schedule updates.
As a conclusion, the
analyst has to select the method to use. Each one has its advantages and problems. Sometimes the nature of the case, available
time, documents availability or budget consideration influence the method
selection.
Required
Evidence to Prove the Claim
Delay claims are
based in part on cost accounting concepts. Construction costs can be either
direct or indirect. Direct costs can be tied directly to a project (e.g. labor)
while indirect costs e.g. home office overhead) maybe allocated to several
projects. Construction costs can also be described in cost accounting terms as
either fixed or variable. Variable costs can generally increase or decrease in
relationship to amount of work (e.g. on site supervisor). Fixed costs remain
the same even though the amount of work may fluctuate (e.g. home office
overhead).
In a case entitled Howard Contracting, Inc. v. G.A. Macdonald
Construction Co., Inc., the California Supreme Court has effectively held
that a subcontractor can recover damages for cost overruns caused by delays and
disruption even though a City's prime contract barred the recovery of such
claims. The case is significant for several reasons. First, it emphasizes the
statewide public work contract prohibition against "no damage for
delay" clauses. Second, the Court's holding also emphasizes that in every
construction contract, the law implies a covenant that the owner will provide
the contractor timely access to the project site to facilitate performance of
work. Third, the courts have concluded that, as a matter of law, a general
contractor can prosecute a subcontractor's "pass-through" claims
against the project owner. Fourth, a contractor can recover extended overhead
for the delay, and the Eichleay Formula for determining allocation of home
office overhead in contractor delay claims has been legitimized by the courts. –
The Eichleay formula derives its name from a United States Board of Contract
Appeals case entitled Appeal of Eichleay Corp., (CCH) (1960) ASBCA 5183, 60-2
B.C.A.
A delay claim is
proved, in part, by comparing as-planned schedules against as-built schedules.
The damages for a delay claim also consider as-bid costs versus actual costs.
The Measure of
Damages Depends On the Nature of Your Relationship to the Project
The measure of
damages depend on your relationship to the project. Simply stated the project
owners delay damage will be different from those sustained by the general
contractor.
Typical Project Owner
Delay Claim Components Include:
When the contractor
delays the project the owner can recover one of two types of damages:
liquidated damages or actual damages.
Liquidated damages are typically used
when a determination of actual damages would be difficult if not impossible to
ascertain. The amount of and application of liquidated damages are normally set
forth in the contract. Some subcontracts incorporate the liquidated damage
clauses in the prime contract. The liquidated damage amount for a specific time
period are determined before the breach occurred. In California liquidated
damages are generally enforceable. Some contracts attempt to include both liquidated
damages and actual damage clauses. When both clauses are included in the
contract the liquidation damage clause maybe invalid. If the owner caused the
delay the liquidated damages provision will not be enforced. If there are
concurrent causes to delay which are attributable to the owner and the
contractor the courts will generally not enforce the clause. However, there are
cases where the court has attempted to apportion the damages.
When there is no
liquidated damage provision in the contract the owner will be able to collect
its actual damages. If the owner has any direct involvement in the
project its actual damages can include: (1) additional supervisorial expenses,
(2) other additional expenses actually caused by the delay, (3) overhead expenses
incurred during the delay period, (4) if project is intended to be leased
reasonable value of loss of use and the lost rents which could not have been
reasonably avoided, (5) if the project is not intended to be leased reasonable
value of loss of use, interest expense, interest expense during the delay
period and (6) any other reasonably foreseeable damages the owner may have
incurred including lost profits from a business.
Typical Contractors
Delay Damage Components Include:
The components of a
contractors delay claim include: (1) indirect costs that occurred during the
extended performance period, (2) home office overhead that was incurred during
the extended performance period, (3) increased (material escalation) material
direct costs that occur during the delay (4) lost productivity caused by the
delay and (5) other damages directly related to and attributable to the delay.
Indirect costs include job site
overhead (e.g. project supervision costs), extended general conditions or
extended or unabsorbed overhead, job shack, portable toilet, telephone,
insurance, and job site power and water.
Home office overhead for the extended
performance period can be calculated using several formulas. The Eichleay
formula is one method for calculating overhead. The Eichleay formula
resulted from a federal Board of Contract Appeal case against the Eichleay
Corporation. The formula is calculated as follows:
Overhead allocable to
the contract equals contract billings divided by total billings for the
contract period times total company overhead for the contract period. Daily
contract overhead equals allocable overhead divided by days of performance.
Amount of company overhead equals daily contract overhead times number of delay
days.
The formula cannot be
applied to every claim. There are cases which limit its application when there
is not a total suspension of work. The formula is best used where home office
overhead incurred and other jobs did not absorb the overhead. Other methods include
modified versions of the Eichleay formula which are modified to fit the
contractors particular delay circumstance such as: (1) segmenting costs to the
delayed project, (2) using the same overhead percentage as that included in the
bid and (3) applying industry published overhead averages.
Direct costs include: (1)
Equipment rental costs and equipment ownership expenses (measured through rate
manuals, depreciation, taxes and insurance) during the delay period (2) Field
labor if the scope of work is increased as a direct result of the delay or if
the hourly labor rate increases during the delay period (e.g. demobilization
and re-mobilization expenses), and (2) Increased material costs if the scope of
work is increased or if the material cost increases during the delay period the
contractor will be entitled to that increased cost.
Delay damages can
also include a contractors increased labor hours resulting from a loss of the
on-site labors efficiency. Disruption occurs when a contractor cannot
achieve the productivity that was originally anticipated. Productivity can also
be impacted by a delays ripple effect. Loss of productivity can be calculated
using several methods. Generally, a productivity claim seeks the increased
labor cost. Typically, each area of lost productivity is determined by
comparing the bid to the actual cost. Once, the area of lost productivity is
determined the damages are calculated for each individual item of work or task
where productivity is lost. Some contractors attempt to calculate the claim on
a total overrun cost basis, but such an approach is disfavored. It is thus very
important to keep detailed time record when the project is disrupted. The
increased labor factors can be obtained through the following: Use of learning
curves and other similar models, time motion studies, expert witnesses,
scientific models, and comparisons to industry unit pricing standards.
Other damages that may be
recovered include: (1) interest on the claim, (2) lost profits on other jobs if
it can be established that due to the delay the contractor couldn't get other
jobs during the delay period, typically, this occurs when a contractor bonding
capacity restricts further contracts until the existing work is completed.
Attorney fees are not recoverable
unless there is an applicable attorney’s fees provisions. If there is an
attorney's fees provision the prevailing party recovers the fees, but in
discretion of the judge. AIA documents attorney’s fees provisions may not
always allow the prevailing party to recover attorney’s fees.
If the party who has
been damaged fails to mitigate damages it may not be able to recover those
damages which could have been mitigated. Thus it is important for the
contractor to make reasonable efforts to minimize the damages it sustains as a
result of a delay.
Delay claims require
significant documentation. Once a delay is identified the effected contractor
should earmark those costs which are due to the delay. Separate files with
copies of the delay related expenses should be set-up and maintained. If there
is a loss of productivity the project supervisorial personnel should maintain
accurate of record of what caused the disruption and how much time was lost as
a result. Generally, the more accurate and complete your delay related
documentation is the more likely you will prevail when you make a claim. It is
difficult and expensive to reconstruct a delay claim when there is little or no
contemporaneous records which set-forth how the contractor was damaged.
When claims arise in
projects, the party with the most complete documentation will have a tremendous
advantage. It is difficult and sometimes
impossible to establish and prove a claim without good documentary evidence. It
is certainly easier to defend a claim with good documentary evidence.
·
Correspondence. A claims expert will
often want to look first at correspondence files, as the best way to see how
the project unfolded chronologically and find notices between the players of
events, impacts and costs. When delays or other problems occur, notice should
normally be in writing, through letters or electronic mail. Written notices
also are normally required pursuant to most construction contracts in order to
preserve rights to time extensions or additional funds.
·
Daily Reports. Daily reports, log
books, journals, equipment logs or labor logs are very helpful to determine
chronology of events, progress of work, manpower and equipment on site.
Regularly kept daily reports will corroborate the circumstances surrounding the
problem, show the men and equipment impacted, help establish the impact on the
schedule as planned and evidence the costs incurred.
·
Payroll Records and Delivery Receipts. Payroll records also are reliable
evidence of manpower on site at various times in the project. Obviously, to be
helpful, payroll records must show which job personnel were working on each
day. It also is important to know which personnel were available, as well as
their specific capabilities or experience. Delivery receipts will similarly
show the availability of materials and equipment throughout the project.
·
Requisitions. Requisitions or pay
applications will typically show work completed at specific times on the
project. These are reliable indications of progress asserted by the contractor
and agreed upon by the owner and architect as of those specific dates.
·
Schedules. Baseline or "as
planned" schedules are particularly important to show what the owner and
contractor really planned as a schedule for the project. Updated schedules and
time impact analyses can show the occurrence of events and the impact on the
project.
·
Bid Documents, Estimates and Job Cost Accounting. Bid documents, including estimates,
will show costs expected by the contractor. Job cost accounting records created
during the project can show the actual costs incurred at various stages of the
project for comparison to bid estimates or change order estimates.
·
Photographs. Photographs and
videos should be taken regularly on any project as an easy and accurate way to
record conditions and progress of the work. It is important, of course, to
establish when photos were taken, who took them and where. Constant and
consistent photographing is invaluable as an easy, inexpensive and thorough
method of describing conditions.
Summary
Construction projects are, by nature, difficult to
control because of their dynamic and complex environment, resulting in frequent
changes, delays, and cost overruns. The ability to assess the impact of site
events on construction projects is vital in the preparation and settlement of
claims. None of the commonly recognized methods of delay analysis, including
windows delay analysis and but-for method, is able to assess the impact of
resource allocation on delay analysis. In addition, the effects of actions
taken by the contractor to accelerate the project and minimize potential delays
are usually ignored in delay analysis.
Delay
claims are now a major source of conflict in the construction industry and also
one of the most difficult to resolve. Inspired
by this, academic researchers and practitioners alike have made numerous
attempts by way of developing methods and good practice documents for guiding
practitioners on the proper analyses and resolution of the claims.
In view
of the differences between the various methods, the general view amongst
practitioners regarding use of the delay analysis methods is that no single
technique is suitable for all delay claims situations and that the most appropriate
one for any case is dictated by a number of factors or criteria. The need to determine and make use of this
appropriate technique is increasingly becoming a crucial issue. Availability and accuracy of project records
have a major influence on the suitability of a technique since the various
techniques employ different programming information sources. If a good as-planned network program exists
but has not been updated with progress due to lack of as-built records, etc., then
impacted as-planned analysis may be appropriate. Conversely, where there are good as-built records
but no as-planned program or the as-planned program is not adequately prepared,
then the collapsed as-built method may be appropriate.
Metropolitan Engineering, Consulting & Forensics (MECF)
Providing
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Services
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