Concurrent Delay: What Is A Concurrent Delay?

As discussed in the previous posting introducing the concept of concurrent delay, owners and contractors often argue for the existence of concurrent delay on their construction projects.  Sometimes these arguments make sense; sometimes they don’t. Most times there is a lot of money at stake in the form of delay damages.    These delay damages include the contractor’s extended general conditions and unabsorbed home office overhead costs that might result from an owner-caused delay that delayed the project’s completion or an owner’s assessment of liquidated damages that might result from a contractor-caused delay that delayed the project’s completion.

One common mistake is to conclude that concurrent delays need only be “concurrent” to be significant.  In other words, some assume that simply because the other party’s delay happened as the same time as the delay you caused, that the other party’s delay negates yours in some way.  To be truly concurrent, however, and to bar on the recovery of delay damages or the assessment of liquidated damages, the delays have to be more than just concurrent.  Unless the contract provides otherwise (the topic for another post), the delays also have to be critical. 

These days, a well-written construction contract provides clear and complete definition of the critical path.  However, even in this day and age, too many construction contracts do not define the critical path.  One of the many negative consequences of failing to define that term is that it may enable the parties to make questionable concurrent delay arguments.  In essence, it may allow a party to make an argument that a delay that was not critical is

Concurrent Delay Intro.: What Does a Concurrent Delay Argument Look Like and Why Is It Made?

Both contractors and owners often argue for the existence of a concurrent delay to negate the granting of a time extension or payment of delay damages. Concurrent delays are discussed ever more frequently due to the increased cost of construction. It is essential to understand the concept of concurrent delay when evaluating delays on a construction project. Concurrency is relevant, not just to the identification of critical delays, but, more importantly, to the assignment of the party responsible for the critical project delays. This is due to the fact that the assignment of critical project delay responsibility directly determines whether a time extension should or should not be granted to a contractor and whether one of the parties may owe the other delay-related damages.

An owner may cite the existence of a contractor-caused concurrent delay as a reason for issuing a time extension without additional compensation or even as the reason for not issuing a time extension at all. For example, assume the owner issued a change order adding new scope to a project. If that added work delayed the project’s critical path and the project’s completion date, then the contractor is typically entitled to a time extension equal to the delay caused by the additional work, as well as corresponding delay damages. To avoid granting the contractor a time extension or paying the contractor its resultant delay damages, an owner may argue that the contractor also delayed the project and, as a result, the contractor

Delay Damages: What Are Liquidated Damages?

Just as contractors incur and are entitled to recover extended general condition and home office costs due to owner-caused project delays, owners likewise incur and are entitled to recover additional and unanticipated management and carrying costs when the contractor delays the project’s completion date.

The owner’s delay damages are represented as either liquidated damages or its actual damages. The reason that owners include a liquidated damages provision in their contracts is due to the fact that it is difficult or practically impossible for owners to accurately determine their actual damages before the contract is executed. Owners rely on liquidated damages to recover a reasonable estimate of the damages that they will incur if the project is delayed by the contractor.

Typically, liquidated damages are calculated at a daily rate. Similar to both extended field overhead and unabsorbed home office overhead, the owner’s recovery of liquidated damages only results from instances when only the contractor causes a critical delay to the project. Owners should rely on advice from counsel when calculating the appropriate amount of liquidated damages to ensure jurisdictional compliance. However, some of the costs that an owner should consider when preparing an estimate of liquidated damages are as follows:

• Costs for project inspection
• Costs for continued design services
• Costs for the owner’s staff
• Costs for maintaining current or temporary facilities
• Costs for additional rentals
• Costs for additional storage
• Lost revenues
• Costs to the public for not having beneficial use of the facility
• Additional moving expenses
• Costs for escalation
• Costs for financing

More importantly, when a project nears the contract completion date and is

Delay Damages: What are Escalation Costs?

In most fixed-price contracts, the contractor is responsible for the risk for fluctuations in its labor, equipment, and material costs between when it estimated the project costs and when it actually completed the work and incurred those costs. However, contractors can incur damages if it had to pay higher costs for its labor, equipment, or material because it performed the work later than it originally planned. This increase is called price or cost escalation.

A classic “escalation” example is when a contractor is forced to pay its tradesmen a higher hourly rate than planned because the owner delayed the performance of its work into a time period covered by a new labor agreement that required the contractor to pay a higher amount for tradesmen’s hourly wages and benefits than planned.

Typically, owners and contractors only think escalation costs can occur when work is performed after the project’s completion date. However, this is not always the case. For example, assume a contractor is constructing a multi-year project and the owner significantly delays the project’s critical path, and the project completion date, during the first year of the project. Let’s assume that, as a result of the owner’s delay in the first year, the project is delayed an entire year such that the work that was planned to occur in year 1 is delayed to year 2, the year 2 work is delayed to year 3, and so on. When this occurs, the contractor may have to pay

Are You Losing Idle/Standby Equipment and Labor Costs?

As discussed in previous “Your Critical Path Blog” postings, contractors are only able to recover their extended field office overhead and extended/unabsorbed home office overhead costs as a result of a critical project delay that extends the project’s duration. However, there are other delay-related costs that are not dependent on the existence of a critical project delay.

A contractor’s idle or standby equipment and labor costs, often incurred during a suspension, are an example of delay-related costs. When an owner suspends a project, or a portion of a project, the contractor can incur idle equipment and labor costs. The contractor’s ability to recover its idle equipment and labor costs is dictated by its construction contract, the magnitude and type of the suspension, and the parties’ actions.

For example, if an owner suspends the entire project for a specific time period, the owner may request that the contractor keep specific equipment on site to enable the contractor to resume work immediately after the suspension order is rescinded. In this situation, the contractor would be entitled to recover not only its extended field and home office costs, but also its idle or standby equipment costs. Additionally, the contractor may also be entitled to recover its idle labor costs, if the owner requested that the contractor maintain onsite tradesmen waiting for direction to restart the work.

However, when an owner suspends only a portion of a project, which does not result in a delay to the project’s critical path or the project’s

Delay Damages: Fabricator/Manufacturer HOOH Formula (Allegheny & Carteret Formulas)

Using the Eichleay, Canadian, Hudson, Manshul, and Specified-Rate Formulas to calculated extended or unabsorbed home office overhead cost can be problematic when applied to a manufacturer or fabricator. Though the issue is still underabsorption, the effect of the delay may be more difficult to evaluate.

To understand this problem, consider the following steel fabricator situation. The steel fabrication plant represents a significant capital investment with monthly operating costs that must be recovered through the fabrication and delivery of structural steel to many construction projects. Fabricators usually “schedule” fabrication in their facilities, with each project being assigned a “window” of time during which fabrication is planned to occur. If the approval of the steel shop drawings is delayed for a particular project because of a design change that is the owner’s responsibility, the fabricator may miss the opportunity to fabricate the project’s steel when it originally anticipated. This may result in the fabricator rescheduling the fabrication of all the work in its facility. In the best-case scenario, this rescheduling is simple—the project that is not ready for fabrication is moved to later in the year and another project is moved up to fill the “hole” left by the delayed project. In the end, the fabrication facility is fully utilized with no downtime, and the costs of owning and operating the facility are covered by the amounts earned for steel fabricated during the year.

However, it’s also possible that moving the delayed project’s steel fabrication to a later period will leave the fabrication facility

Delay Damages: Contractor HOOH Formulas 4 Of 4 (ODOT & VDOT)

This posting introduces the Specified-Rate Formula for calculating a contractor’s unabsorbed home office overhead costs after experiencing an excusable, compensable delay. Unlike the Eichleay, Canadian, Hudson, and Manshul Formulas that either must be performed, or are usually performed, after the project is complete, some owners include a home office overhead Specified-Rate Formula in their construction contracts to compensate contractors for their unabsorbed home office overhead costs for compensable delays.

For example, the Ohio Department of Transportation (ODOT) 2016 Construction and Material Specifications includes a Specified-Rate Formula to compensate contractors for “home office overhead, unabsorbed home office overhead, extended home office overhead, and all other overhead costs” for excusable, compensable delays of 10 calendar days or more. Interestingly, ODOT does not compensate a contractor for its home office overhead costs for all excusable delays. In fact, it limits a contractor’s recovery of its home office overhead costs to the following instances:

Delays due to utility or railroad interference within the Project limits. Delays due to an Engineer-ordered suspension. Delays due to the neglect of the Department or its failure to act in a timely manner. Aside from a delay caused by a third-party interference within the project limits, ODOT treats the contractor’s recovery of home office overhead costs as “unabsorbed” home office overhead costs. ODOT’s formula for calculating a contractor’s daily home office overhead rate is as follows:

Where: