CONSTRUCTION CLAIMS AND DISPUTES

HOW TO MANAGE CONSTRUCTION DISPUTES TO MINIMIZE SURETY AND CONSTRUCTION CLAIMS

Construction Claims & Disputes

Claims and disputes are a constant in the construction industry, regardless of whether the industry is doing well or poorly. The number of claims seems to have risen during the recent recession despite the downturn (or perhaps as a result of the downturn) in the industry. Owners and contractors who realize the potential for construction disputes and conflicts rely on construction claims consultants who are experienced construction managers and engineers, such as Metropolitan Consulting & Engineering. Because in construction industry “time is money”, the clients typically want a firm to efficiently and cost effectively prepare and analyze claim issues to promote timely and favorable resolution, without resorting to litigation.

Contract disputes are avoidable. Companies that avoid contract disputes tend to have: (1) Considered and allocated contract risks early; (2) Communicated potential problems or claims at the earliest opportunity; (3) Realistic assessments of the value and impact of a claim; (4) Appropriate attitude and commitment; (5) The requisite disputes resolution knowledge and expertise; (6) Early negotiations; (7) Stakeholders that "think outside of the box"; and (8) Managed customer expectations.

The Construction Claims

The most frequently encountered claims include:

1. Construction Delay Claims

2. Disruption and Loss of Labor Productivity Claims

3. Design and Construction Defect Claims

4. Force Majeure Claims

5. Acceleration or Compression of the Schedule Claims

6. Suspension, Termination and Default Claims

7. Differing Site Conditions Claims

8. Change Order and Extra Work Claims

9. Cost Overrun Claims

10. Unacceptable Workmanship or Substituted Material Claims

11. Non-payment Claims (stop notice (or Notice to Withhold) claims, mechanics’ lien (only for private construction projects) and payment bond claims)

Once claims have begun to manifest, it is critical to implement a systematic plan to address them at once. Our Metropolitan Claims Management Group identifies, analyzes and evaluates the issues to determine responsibility. We conduct a number of construction delay analyses to pinpoint the effect of any action or omission on time and cost issues and determine if increased costs are reasonable. Finally, we offer invaluable support in any defense, negotiation, arbitration, dispute resolution or litigation.

We will address these claims in the following blogs.

1. Construction Delay Claims

Construction delays are costly. Construction defect related delays can be even more costly due not only to protracted litigation but also for their tendency to exert a magnified impact over time. It is crucial that you surmount your construction defect challenges with rapid yet thorough expertise. Construction delay claims, or disputes related to schedule impacts, are one of the most common types of disputes in the construction industry. Yet, delay claims have a propensity to be some of the least understood and frequently complex disputes in the construction field.

Delay claims typically relate to unanticipated project events and/or circumstances which extend the project and/or prevent work from being performed as originally planned. They can be owner-, design professional, supplier or contractor/subcontractor-caused delays. Construction delays can be caused by many factors, which include, but are not limited to, mismanagement and maladministration; site access restrictions; differing site conditions; defective material or workmanship; delay in obtaining permits and approvals; financial problems; defective or incomplete plans and/or specifications; changes in the work; labor productivity issues; strikes and labor disputes, document review/approval; testing/inspections; inclement or unusually severe weather; and force majeure events.

We will examine why construction delay claims are brought, how to effectively analyze them, what some of the important contractual clauses are in the analysis, and how design professionals can defend against them.

Three common points of contention relative to schedule delay claims are

· whether an issue impacted the critical path of the project,

· what is the delay quantification, and

· what is the root-cause of the delay and entitlement to a time extension and/or additional compensation.

One must review the contract to understand the basis of the agreement and determine who accepted particular risks and what constitutes compensable or excusable delays. Consequently, a clear understanding of the basic elements necessary to substantiate delay claims is invaluable. Metropolitan Consulting & Engineering’s construction claims consultants have advanced hands-on knowledge of CPM schedule analysis and extensive practical experience in the contract claims environment involving construction delay claims. Our consultants prepare and analyze claims, present in mediations, and testify in litigation and arbitration proceedings on matters concerning CPM scheduling, schedule delay/disruption, and acceleration.

We provide contemporaneous and forward-looking CPM schedule analysis to facilitate the early resolution of time extensions, as well as forensic delay analysis for the preparation and/or defense of construction delay claims. Our construction claims consultants specialize in CPM schedule analysis by means of the following industry-recognized methodologies:

· Windows Analysis or Contemporaneous Period Analysis

· Time Impact Analysis (TIA)

· Collapsed As-Built

· Impacted As-Planned

· As-Planned vs. As-Built

It should be noted that the selection of a particular schedule analysis methodology depends on the project facts, the nature of the events being analyzed, the nature and extent of available as-built information, and the available progress data, and may vary from project to project. Each of the above-referenced schedule analysis methodologies has inherent advantages and disadvantages. It is important to collect all available proofs required to establish a compensable delay claim.

Reasons for Delays

Reasons for Owner-caused delays include: inadequate project financing; failure to pay; limitation to site access; slow response to contract signing or document reviews and approvals; changes to the original work scope; poor coordination of several prime contractors, and several other factors.

Reasons for Design Professional-caused delays include: defective or incomplete drawings and specifications; slow performance of tests and inspections; excessive RFIs and/or failure to timely resolve; failure to promptly respond to contractor’s RFCs, and several other factors.

Reasons for Contractor-caused delays include: shoddy workmanship; failure to properly evaluate site conditions; failure to properly evaluate the contract documents, specifications and design drawings; inadequate resources; problem workers; and several other factors.

Analysis of Delay Claims

At a minimum, the following documentation is required to effectively analyze delay claims:

· Claim notice

· Time tickets

· Schedules, narratives & updates

· Meeting minutes

· Daily logs and diaries

· Correspondence

· Change order logs

· Inspection & progress reports

· Cost accounting records

· Invoices

· Purchase orders

· Estimates and bids

· Equipment-use logs

· Financial statements

· Reports to sureties

When reviewing and analyzing the construction contracts, the following clauses and other provisions are crucial:

· Time of the essence

· Contract commencement date

· Performance period

· Extensions

· Substantial completion

· Notice & quantification of claim

· Scheduling provisions

· Changes clause

· Differing site condition clause

· Suspensions

· Termination (for cause and/or convenience)

· Liquidated damages

· No damage for delay

A very important clause in most contracts is the Notice of Claim requirement. This written notice must be filed within five days of delay-causing event (condition precedent). The purposes of such notice are to bring the parties together to try to resolve or mitigate without going to arbitration or litigation. This is an opportunity to air the disputes and continue with a clean slate. If such notice is not given, and the owner has not waived the notice provision, the contractor may forfeit its claim for a time extension and assume liability to the owner for damages attributable to the delay.

Another important clause of the contract is the “No Damages for Delay” clause. A “no damages for delay” clause in a construction contract can cause a contractor to lose its claim to delay damages even before performance begins. As the name indicates, “no damages for delay” clauses contractually obligate the contractor to forgo claims against a party liable for damages incurred by the contractor due to delays. The advantages of such clause are that it provides certainty as to the overall cost and avoids costly litigation. The disadvantages are the contractor may cut corners to compensate for contingencies and so on. There are some court enforced exceptions to this clause, including: unreasonable duration of the delay; intentional interference from the owner; fraud, bad faith, and so on.

Another important contractual clause is the requirement that the bidder performs a site inspection prior to submitting his bid.

· Permits contractor to conduct tests (e.g., borings, test pits)

· No representations or warranty re site conditions

· Contractor assumes risk of latent site conditions

· Contractor must present evidence of all efforts to comply with clause prior to submitting bid

· Owner gives complete and open access to all geotechnical materials

Compensable Delays

A delay that is compensable to a contractor is one that was not anticipated when the contract was made and is due to some inaction or action for which the owner or those working under him or her are responsible. In such a situation, the contractor can recover money damages from the owner to cover the extra costs incurred as a result of the delay, and also receive a time extension.

Most construction contracts do not set out all of the owner’s obligations in helping the contractor complete the project on time, but there are general implied duties imposed on the parties to a construction contract. Absent contractual provisions negating such duties, an owner generally has (a) a duty to coordinate and schedule the work of all contractors with whom it has a direct contract, and (b) a duty not to delay, hinder, or interfere with the work of the contractor.

Contractors have often recovered delay damages against owners whose actions or inactions obstructed the progress in the project based on this general rule of law. For example, an owner has been held in breach of its general duty not to interfere with the contractor’s progress when: (a) it failed to provide suitable access to the construction site; (b) its plans were defective, resulting in delays; (c) it failed to ready the construction site in time for the contractor to begin work; (d) it failed to make timely payments; (e) it failed to provide a written order for additional work requested; (f) it did not approve drawings necessary for the job within a reasonable time; and, (g) it ordered a hold or suspension of the work.

In legal terms, the proofs required to establish a compensable delay claim must establish the following:

1. Excusability;

2. Compensability;

3. Criticality;

4. Concurrency; A concurrent delay occurs when two or more unrelated delays affect the work at the same time. These delays may originate with a number of sources (the same party, two or more parties or by no party — inclement weather). Typically, the delays are of different types. For example, an owner should not be liable for a compensable delay arising from the failure to timely provide the contractor with plans or specifications during a period of severe flooding that independently delays the project. When concurrent delays are experienced, the owner and the contractor each bear their own costs resulting from the delay and may not seek recovery against each other.

5. Causation – establish link between delay-causing event and cost increase; delay is caused by owner, was unreasonable, caused damages to contractor, and so on.

Inexcusable and Excusable Delays

There are two general categories into which construction delays typically fall. First, there are inexcusable delays, where the delay is the fault of the contractor or third parties such as subcontractors or material suppliers for whom the contractor may be responsible under the contract. Essentially it covers situations where the risk is contractually assumed or assumed by course of performance. Second, there are excusable delays, where the delay is attributable to circumstances beyond the contractor’s control and, importantly, where the delay is not caused by the fault or neglect of the contractor or third parties for whom the contractor is responsible. Depending on the type of delay, the owner will be entitled to different relief.

Inexcusable Delays

In the instance of an inexcusable delay, the owner may demand that the contractor accelerate its performance to meet the schedule, recover actual or liquidated damages from the contractor and, in extreme cases, terminate the contract based on the contractor’s default.

Inexcusable delays may be divided into compensable delays, where the contractor may recover damages for the extra costs it incurs as a result of the delay, and noncompensable delays, where the contractor is entitled to time but no money.

Excusable Delays

With respect to excusable delays, an extension of the time for performance is justified, and, in some cases, the contractor may be entitled to recover delay damages from the owner. Excusable delays usually include delays for which the owner or architect is responsible as well as delays specifically excused by the contract. Examples include: no fixed turnaround time; the drawings were not submitted in compliance with the submission schedule; contractor was provided with incomplete or faulty drawings.

METROPOLITAN ENGINEERING, CONSULTING & FORENSICS (MECF)

Providing Competent, Expert and Objective Investigative Engineering and Consulting Services

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Tenafly, NJ 07670-0520

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