Key Takeaways

  • Delay costs in construction may include labor, equipment, extended overhead, and lost productivity, and contracts must specify when and how they are recoverable.
  • A delay or disruption clause often determines if costs can be claimed, but proof of breach or compensable cause is required.
  • Liquidated vs. actual damages are common methods for calculating financial impact, and clarity in drafting helps avoid disputes.
  • Schedules are crucial tools for managing delay risks, documenting progress, and protecting parties from liability.
  • Excusable vs. inexcusable delays allocate responsibility, but courts also weigh whether delays are compensable, concurrent, or critical to the project’s completion.
  • Proper calculation of delay costs considers both direct and indirect expenses, with industry research showing delays often raise project costs 20–30%.

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 form construction agreements:

Methods of Calculating Delay Costs

Delay damages can be measured in different ways depending on contract terms and the nature of the delay. The two most common approaches are:

  • Actual damages: These require proof of the contractor’s real losses, such as additional payroll, rental of equipment, or extended overhead. Courts typically require detailed documentation of these costs.
  • Liquidated damages: Many contracts include a per-day rate agreed upon in advance, simplifying recovery. While these avoid lengthy disputes, they must be a reasonable estimate of likely damages, not a penalty.

Indirect or “soft” costs, like inefficiency, lost productivity, or reduced cash flow, may also be claimed if tied directly to the delay.

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
  • Superintendent
  • Agents
  • 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.

Typical Delay Cost Components

When delay costs in construction are compensable, they often include:

  • Extended field overhead: Additional site management, utilities, security, and temporary facilities.
  • Unabsorbed home office overhead: Administrative expenses spread over a longer project timeline.
  • Labor and equipment standby: Costs for idle crews and machinery waiting for delayed work.
  • Escalation of material costs: Price increases for materials purchased later than originally planned.

Industry research shows that widespread project delays can increase total costs by 20–30%, underscoring the financial importance of properly allocating risk.

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:

  • Superintendent
  • 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.

Critical, Concurrent, and Compensable Delays

Not all delays have the same legal effect:

  • Critical delays extend the overall completion date of the project. These are the most likely to lead to claims for damages.
  • Concurrent delays occur when both owner and contractor contribute to project slippage. In these cases, damages are often offset, or courts apportion responsibility.
  • Compensable delays result from owner-caused actions or omissions, such as late approvals or design errors. Contractors may recover costs and additional time for these.

Understanding these distinctions helps parties evaluate whether delay damages are recoverable and to what extent.

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.

Role of Documentation in Delay Claims

A well-maintained schedule is only part of the evidence needed to support or defend delay claims. Other key records include:

  • Daily reports of labor, weather, and site conditions.
  • Change orders and correspondence showing decisions or approvals.
  • Cost reports tracking actual expenses against the budget.
  • Subcontractor schedules and coordination records.

Comprehensive documentation not only proves entitlement to delay costs in construction but also helps demonstrate whether delays were excusable or compensable.

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.

Strategies for Managing Delay Risks

Because delays are nearly inevitable in construction, contracts often include strategies to mitigate disputes:

  • Force majeure clauses that excuse performance during extraordinary events like natural disasters or pandemics.
  • Notice requirements obligating contractors to alert owners promptly of potential delays.
  • Alternative dispute resolution (ADR) provisions, such as arbitration or mediation, to resolve delay claims faster and with less cost.

By clearly allocating risks and responsibilities, these strategies reduce uncertainty and help all parties better manage potential delay costs.

Frequently Asked Questions

  1. What are common examples of delay costs in construction?
    They include labor and equipment standby, extended field overhead, increased material costs, and unabsorbed home office expenses.
  2. How are liquidated damages different from actual damages?
    Liquidated damages are pre-agreed daily amounts stated in the contract, while actual damages require proof of real financial loss tied to the delay.
  3. Can both owner and contractor be responsible for delays?
    Yes. These are called concurrent delays, and responsibility is often shared or offset, depending on the circumstances.
  4. How do schedules help with delay claims?
    Schedules show planned versus actual progress, helping prove which party caused delays and whether they are excusable or compensable.
  5. What percentage of costs can delays add to a project?
    Research suggests widespread delays can increase project costs by 20–30%, making proactive delay management critical.

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