Delay Damages Construction Contract
A delay damages construction contract contains a clause that provides for damages due in the event of delays.3 min read
A delay damages construction contract contains a clause that provides for damages due in the event of delays. The term “delay” may be broadly defined, however, so the amount of damages can vary widely.
Delay Costs and Damages
There's no automatic right for a party to receive delay or disruption costs. A contract has to specifically allow for a party to recover damages.
If the contract doesn't detail this, one party can only recover delay or disruption costs if it can prove a breach of the contract caused the delay. The contractor has to show that the principal's breach led to a loss. Different outcomes can occur, based on contractual language allowing for delay or disruption compensation.
Following are examples from standard formconstruction agreements:
Delay or Disruption Costs Clause
This clause covers the recovery of extra costs that result from delays due to granting a time extension. It doesn't address how delay costs and disruption costs differ, but it may include language that covers “extra costs due to delay or disruption.”
By default, the contractor is entitled to extra costs for delays only when caused by the following:
- Principal or its consultants
- Other contractors
Extra costs are those which are incurred solely because of the delay. This excludes costs that would have been incurred even without the delay, such as off-site overheads. Extra costs don't include loss or damage. For other delay causes, the contractor can only claim what's provided for in the agreement's annexure or somewhere else in the contract.
Delay Damages Clause
This clause provides that when one party has been granted an extension of time, the contractor is entitled to delay damages for each day that falls within an extension of time due to a “compensable cause.”
A compensable cause means an omission, default, or act by any of the following:
- Agents or other contractors
- Principal or its consultants
It also includes causes listed the agreement's annexure. Basically, as long as the contract allows it, the contractor can claim damages in cases of neutral causes of delay, or no breach. There's debate over what damages entails when not associated with a contract breach, so it could include fixed overheads and loss of profit.
The Importance of Schedules
Everyone involved in the construction process has a vested interest in things running on time, such as performance and payment. Construction projects involve the following:
- Tremendous overhead
- Expensive equipment
- Significant manpower
- Large payrolls
The longer it takes to finish a job, the higher the costs and the potential for litigation.
A construction schedule has important purposes, such as the following:
- It details how work is planned and sequenced.
- It may protect a party from liability due to delay costs.
- It may allow a party to show that another party caused a delay.
Schedules should be monitored and updated to serve their purposes.
Contractors often use completion date and percentage of completion schedules to do the following:
- Track progress
- Monitor delays
- Coordinate subcontractors
Owners sometimes require more sophisticated methods for scheduling.
Inexcusable and Excusable Delays
Delays in finishing all or part of a construction project can have a significant financial impact on the contractor and the owner. In some cases, the parties can resolve disputes due to delays, but it often falls to courts or arbitrators to figure out who's responsible for the delay and who, if anyone, must take on increased costs as a result.
Courts or arbitrators who handle such disputes consider many factors, such as the following:
- What caused the delay
- Any express or implied contractual obligations
- How the parties allocated a delay risk by contract
Delays generally fall into one of two categories: inexcusable or excusable. In an inexcusable delay, the contractor or third party — such as a subcontractor or supplier — is at fault, and the contractor may be held responsible under the contract. In excusable delays, circumstances beyond the contractor's control cause a delay. No fault or neglect leads to it.
Construction projects range from small jobs to expansive projects that cost millions of dollars. No matter the size, delays can be costly. A well-drafted contract can protect you in the event delays or other problems occur.
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