1. EXCUSABLE DELAYS

   The Standard AIA Contract contains an excusable delay clause that specifies the events that will excuse a contractor's delayed performance. For example, AIA Document A201 (1997) provides, in pertinent part:

   If the contractor is delayed at any time in the commencement or progress of the work by an act or neglect of the owner or architect, or of an employee of either, or of a separate contractor employed by the owner, or by changes ordered in the Work or by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, or other causes beyond the contractor's control, or by delay authorized by the owner pending mediation, arbitration, or by other causes which the Architect determines may justify delay, the contract time shall be extended by change order for such a reasonable time as the Architect may determine.¹

   In simple terms, an excusable delay is a delay, which is created by events beyond the control of either the contractor or the owner, which neither can be held responsible. Various examples of excusable delays include unusually severe weather, acts of God, tornados, floods, earthquakes, or any other type of biblical type of event that would result in excusable delay.² The essential element of excusable delay is that they must be caused by some unforeseen occurrence in order to relieve the contractor of its obligations to meet the time requirements under the contract. The parties share the risk by bearing their respective costs incurred by granting other time extensions for completion of the project. Thus one receives "time but not money" for excusable delays.³

   The determination of whether or not abnormal weather is an excusable occurrence also depends upon the stage in construction. Weather affects different portions of the construction differently. For example, exterior weather conditions will not necessarily affect an interior trade engaged in the work. In contrast, excessive rainstorms and flooding during the foundation stage will be a problem.

   Other types of excusable delay include unforeseeable strikes or labor problems.⁴ However, for a strike to constitute an excusable cause for delay, the strike must substantially impair the contractor's performance of contractual duties and must not be foreseeable. To avail itself of the excusable delay provision, the contractor has the burden of proving the excuse is beyond his control without his fault or negligence. Furthermore, the contractor must prove the he took reasonable action to perform the contract notwithstanding the occurrence of such excuse.⁵ Other types of delay, which are deemed excusable, will be sovereign acts of government, wars, biblical events such as earthquakes, volcano eruptions, avalanches, lightning, and extraordinary weather related events of typhoons, droughts, and floods.⁶

   Another type of excusable delay is due to unavailability of materials. This is especially acute in the construction industry when there could be concrete and other material shortages with concurrent price escalations. Such excusable delay includes delay due to the acts of third parties for which neither the contracting party, i.e. the owner or contractor, has control. However, it must be noted that "[c]ontractors are presumed to be aware of foreseeable industry conditions at the time of the contracting, just as the owner's warrant availability of the specified materials." ⁷

   Finally, there is a “catch-all” for excusable delays based on unenumerated causes. Any delay to the construction project due to cause outside the control of both the owner, contractor, or its subcontractors or suppliers would be deemed excusable. Such a cause includes epidemics, quarantine restrictions, vandalism, freight heists, terrorism, and a host of the other force majore events. Proof of causation and the impact upon the critical path will determine whether the term of the extension of contract time will be granted.⁸

2. OWNER-CAUSED DELAYS

   The owner has an obligation to provide information or services required by the contract documents to be furnished with reasonable promptness.⁹ Often times in construction projects the delay from the owner providing specific direction as to submittals and responses to change orders delays the completion of the project. These types of short delays should be addressed early on during the course of the construction project to avoid any delay in the critical path to the overall completion of the project. In other words, if the owner changes the type, size, or shape of certain structural steel in the foundation, then it is necessary for the owner and contractor to communicate immediately concerning this issue and to amend the scheduling as necessary. Whereas, the submittals for carpet color are not critical issues.

   Besides the minor owner caused delays due to short delays in providing submittals, if there is active interference by the owner the contractor is entitled to recover for damages due to delay. The owner's failure to provide access to the site in a timely manner often leads to contractor delay claims based on denial of access because the law assumes that timely access is anticipated by both the parties. Obviously, an owner breaches this duty if he delays his contractor's performance of the work by interfering with the contractor.¹⁰ “Owner-caused delay events include, but are not limited to, the failure to give the contractor appropriate access to the worksite; failing to secure necessary property ownership or rights of way; failing to relocate utilities; imposing work area restrictions; using the site in a way that impedes the contractor's work; allowing other contractors to work on the project site in a way that interferes with the contractor's work; failing to demolish existing structures; failing to relocate tenants; the failure to timely obtain approvals from governing authorities; problems in obtaining project financing; defective plans and specifications; late processing and approval of shop drawings and other submittals; delays in conducting required inspections; delayed notice to proceed/contract award; inappropriate stop work orders; delays in procuring owner-furnished equipment and materials; and excessive change orders".¹¹

   Furthermore, the owner's failure to coordinate multi-prime trade contractors, may give rise to a delay claim for contractors. It is also necessary for a contractor who receives numerous owner changes and/or design corrections through a request for information process, submit a cumulative impact claim due to the series of changes on productivity, schedule and cost.

3. CONTRACTOR-CAUSED DELAYS

   Inexcusable delays, as opposed to the excusable delay, is caused by an event within the control of the contractor or its subcontractors or suppliers and is outside the control of the owner. The owner has a right in an inexcusable delay to demand that the contractor recover the schedule and may even consider default termination. Furthermore, the owner can recover from the contractor for breach of contract in the event of a contract delay. An inexcusable delay entitles a contractor to neither an extension of contract time nor compensation from the owner and obligates the contractor to accelerate work to recover, schedule, or pay damages for the delay in the completion.

4. ACCELERATION CLAIMS

   There are two (2) primary types of acceleration, actual or constructive. Actual acceleration occurs when a contractor is explicitly directed to accelerate work by the owner through increasing manpower, increasing shifts, and engaging in any other type of conduct to speed up the pace of the work.¹² Due to this compression of contract time, the contractor is entitled to compensation for this increase in actual acceleration.¹³ Indeed, acceleration is inherently disruptive and the contractor has less time to complete the remaining work and necessarily must increase its labor and equipment cost either by overtime or by augmentation of labor crews or equipment, or both.

   A compression of time in the schedule resulting from implicit directives to speed up the project or the failure to recognize and adjust contract time for an excusable delay is referred to as constructive acceleration.¹⁴ In other words, when an excusable delay occurs but there is no change in a contract, the contractor would be entitled to those damages due to his necessity to accelerate the pace of the project to make up the time for the excused delay.

   The Pennsylvania Commonwealth Court, in the case of Department of Transportation v. Anjo Construction Co.,¹⁵ addressed a contractor filing a claim for constructive acceleration damages and held that the contractor could recover for increased costs from accelerating performance because PennDOT constructively ordered it to accelerate performance. The Court held that "acceleration occurs when a contractor speeds up its pace of its work, faster than the rate prescribed in the contract."¹⁶ A contractor was held to be able to recover for increased costs incurred as a result accelerated performance, "when (1) its own delays in performance are excusable, (2) the contractor was ordered to accelerate, and (3) the contractor did so and sustained extra costs".¹⁷ The Court further held that an order to accelerate need not be explicitly expressed as a specific command, but may be deemed constructive. In other words, based on facts and circumstances even without an explicit contractual agreement the intent of the government to require to maintain the schedule of the project enabled the contractor to be entitled to compensation for extra costs incurred in accelerating its performance on the contract.¹⁸

   A contractor’s detailed analysis of a potential accelerated delay claim immediately after the triggering event(s) is essential for presenting the claim to the owner, and preserving evidence. This early presentation of an acceleration issue can lead to an amicable resolution with an extension of time or adequately document a claim for litigation purposes.

5. CONCURRENT DELAYS

   A contractor's recovery is limited when both the contractor and the owner simultaneously delay the project's critical path. This is a concurrent delay and allows the contractor a time extension, but denies the contractor to recover for any time related costs. Thus, the net effect is that neither party may benefit monetarily from delay and that the sole remedy of both parties is an extension of contract of time. Once again it is critical to note that concurrent delays delay cause concurrently by multiple events not exclusively within the control of one (1) party. No liability attaches to non-critical delays or to otherwise critical compensable delays that do not affect the critical path of the project. "Concurrent delay "frequently is raised as a defense by the party seeking to avoid liability for delay damages.'"¹⁹ It is important during the course of the project when concurrent delays arise to check the flow charts for critical path method and make any appropriate necessary changes early on in the course of the construction contract.

6. PRESERVING DELAY CLAIMS

   As noted earlier, in order to properly preserve a delay claim it is necessary to obtain the critical documents and expert analysis early in the project when the compensable delay arises. When a delay occurs a schedule analysis of the CPM schedule to approve the delay should be prepared immediately to document the facts and circumstances and to identify the delay and impact on the project schedule. It is also important to gather any necessary requests for information, weather reports, shop drawing logs, submittal logs, cost and budget records, procurement records, inspection reports, and any other correspondence or memoranda that would be necessary to complete an analysis and document the type of delay and activities or events which resulted in the subsequent delay. After compiling all of the information perform an impact analysis. Waiting until after the project is completed will not enable the owner or contractor to prepare sufficient documentation regarding the delay, which will be critical for litigation after project completion.

   The following checklist outlines a proposed step-by-step procedure preparing and documenting for delay claims:

   • Engage in exhaustive review of all contract clauses, construction drawings, specifications, administrative codes, building codes, field directives, correspondence, cost estimates, architectural correspondence, change orders, and any other necessary documents to prepare an accurate description of the changed condition or delay that has been encountered.
   • Check the CPM Schedule and determine the project's critical path with special attention to the inception of the delay.
   • Contact the architect, engineer, or any other necessary expert to prepare an opinion as to the bases for delay and changes in the project's critical path.
   • Identify the "float time" to determine the number of days an activity can be delayed without affecting the project's critical path.
   • Interview any key project staff and document interviews regarding the change and delay issues.
   • Identify any recovery periods involved in the calculations.
   • Retain an accountant or other office staff to identify the specific monetary damages as a result of home office overhead increases, and other monetary damages that relate to the delay.
   • Print and download on a disk any electronic communications that will be necessary for proof of the delay.
   • Obtain daily logs for time period that that would relate to the delay damage claim.
   • Preparation of outline of "Game Plan" and determine whether to resolve on-site, file immediate arbitration or wait to initiate litigation.
   • Specifically document and identify any potential resolutions to the delay in order to bring the Project back on track.

7. DAMAGES FOR DELAY CLAIMS

   Liquidated Damages
   Liquidated damages within a contract compensate a party for difficulty to prove losses, and "serve a particular useful function when damages are uncertain in nature, amount, or are immeasurable as in the case with many government contracts."²⁰ The reasonableness of a liquidated damages sum may not be a penalty, but must be intended to compensate the owner for delay. Therefore, in preparation of a liquidated damage amount it is necessarily in almost every jurisdiction, including the Commonwealth of Pennsylvania, to determine whether or not the liquidated damages are enforceable. Therefore, a pre-contract estimate of damages that may be sustained due to delay will be enforced. Whether an amount fixed by a contract is damages of a liquidated damages clause or an invalid penalty is a question of law.²¹ Therefore, it is actually critical that an owner prepare reasonable pre-contract estimates to enforceable liquidated damages provision.

   Eichleay Formula
   

   The Eichleay approach is one reasonable method for evaluating delay damages, but should not preclude a careful analysis of each case to determine the proper formula to be utilized. The Eichleay formula is a method adopted by federal courts for the calculation of home office overhead in cases where the government has caused a delay in the completion of a contract and, as a result, the contractor is seeking damages. The Eichleay formula divides the ratio of contract billings to total billings for the period of performance into the contractor's daily office expenses and then multiplies that amount by the number of days of delay to arrive at the amount of the claim.²² The formula has been expressly adopted in the Commonwealth of Pennsylvania.²³ Calculation of the formula requires a three-step procedure. First, to obtain allocable contract overhead, multiply the total overhead cost incurred during the contract period times the ratio of billings from the delayed contract to total billings of the firm during the contract period. Second, to obtain the daily contract overhead rate, divide allocable contract overhead by days of contract performance. Third, multiply the daily contract overhead rate times days of delay. The result is the amount recoverable.

   1.	Contract billings Total billings for Contract period	x	Total overhead for contract period	=	Overhead allocable to the contract
   2.	Allocable overhead Days of performance	x	Daily contract Overhead
   3.	Daily contract overhead	x	No days delay	=	Amount claimed

   If the Eichleay formula produces inequitable results, there are other types of methods in order to determine delay damages.

   Total Cost Method
   Total cost method has been recently adopted as a viable method for determining damages in the Commonwealth of Pennsylvania by the United States District Court for the Eastern District of Pennsylvania in the case of Mid Atlantic Constructors, Inc v. Stone and Webster Constr., Inc.,²⁴ (New Case Alert) to calculate subcontractor’s damages. The total cost approach has been criticized by courts and arbitrators, because it simply compares the actual costs incurred plus profit to the bid amount and seeks the difference to establish the claim amount. For example:

   Actual costs incurred	$1,000,000
   Plus as-bid profit margin of 10%	100,000
   Total	1,100,000
   Less original contract price	(850,000)
   Total Cost Claim	$250,000

   The total cost overrun is the responsibility of the owner.

   In Mid Atlantic Constructors, Inc., the contractor terminated a subcontractor from a power plant project. The subcontractor alleged that the contractor caused delays, accelerated conditions and inefficiencies in the subcontractor's performance of its duties causing it to incur substantial costs and increase in delays. As evidence of the subcontractor's role in some of the delay and lost productivity, the contractor cited deposition testimony of the subcontractor's employees who admitted that the subcontractor could have done more to increase productivity. The subcontractor used a total cost method because it could not isolate the causes for the breach. The Eastern District Court found that the total cost method was viable in Pennsylvania as a measure of damages. Although the total cost method has been described as a measure of last resort, it also noted that "the use of the modified total cost method has been approved by the Third Circuit."²⁵ Plaintiffs must satisfy the following four elements to show that the total cost method should be used: (1) the nature of the losses at issue make it possible or impracticable to determine damages to a reasonable degree of accuracy by any other method; (2) plaintiffs' bid for the work was realistic; (3) plaintiffs' actual costs for the project are reasonable; and (4) plaintiffs were not responsible for the added costs of the project.²⁶

   Miscellaneous Direct Damages
   There are other types of methods for delay costs that can be calculated to avoid the total cost method which include labor costs based upon the expended and escalated wages needed for premium paid for overtime or increased union wages. There are also delay costs for materials due to the extension of time in order to obtain the material, job in direct costs such as maintaining job site trailers, field engineer costs, security personnel, and other costs would be part of the delay claim also. In addition, finance costs of the result of the contractor not receiving the funds in a timely manner and thereby being forced to borrow money to finance construction could be a proper claim under a delay damage. Furthermore, other disruptive damage such as inability to obtain further work due to extensive delay can be a potential damage.

   Duty to Mitigate Damages
   When damages as the result of delay arise, the contractor and owner has to be aware of the obligation to limit the amount of damages. A party who suffers a loss has a duty to make a reasonable attempt to mitigate damages, but the burden is on the party who breaches the contract to show how further loss could have been avoided through the reasonable efforts of the injured party.²⁷ It is essential to document the efforts to mitigate damages and not increase the damage by failing to act. However, an injured party is not obligated to mitigate damages when both he and the liable party had an equal opportunity to do so.²⁸

   No Damages For Delay Clause
   Restrictions with respect to delay can be contractually imposed by a "no damage for delay" clause. Essentially a no damage for delay clause is an exculpatory provision which provides regardless of what one party does to delay the work of the other party, even though caused from neglect, fault, or omission the party will not be liable for delay suffered by the injured party. A typical no damage clause provides "No payment or compensation of any kind shall be made to the contractor for any damages because of the hindrance or delay from any cause in the progress of the work, whether such hindrance or delay would be avoidable or unavoidable."²⁹ As a general rule, no damage for delay clauses are enforceable when they are clear and unambiguous and reflect the intent of both of the parties. This is consistent with Pennsylvania jurisprudence in the interpretation of contracts.

   Nevertheless, if the delay is a result of wrongful conduct, such as fraud, bad faith, or act of intentional interference, the no damage for delay cause may be deemed inapplicable. A quantitative exception recognized in some cases is that a no damages for delay clause does not apply to delays that are "unreasonable" in duration. Some courts rationalize the need for this exception by finding a lengthy delay tantamount to abandonment of contract.³⁰

   Also, be aware of the waiver of rights in contract provisions. (New Case Alert). In Diener Brick Co. v. Mastro Masonry Contractor,³¹ the subcontractor proved it supplied materials in excess of a contractual cap of $250,000.00. The Trial Court held that the subcontractor should be paid for the value of the brick supplied, despite the contract limitation. However, the Superior Court enforced a limitation on compensation, which the supplier was subject to, properly leaving the risk that the supplier's cost would exceed its contract value on the supplier. Accordingly, if there is agreement language that states material cost was not to exceed a certain amount, it will be enforced by the Superior Court.

Should you have any questions regarding this matter or any commercial litigation issues, please call or e-mail John P. Corcoran, Jr. at (412) 261-6400 or jpc@jpcg.com.