2022 is shaping up to be a mixed bag for the construction industry. The uncertainty and panic surrounding COVID-19 and its ancillary effects are subsiding or largely have already, being replaced with the daunting realization that project delays could be with us for quite some time.
In 2020, COVID-19 contributed to suspension of work and closure of construction projects all over the world, and throughout 2021 additional delays were caused by a seemingly endless clog in the supply chain of construction materials. Together, the impact of these events on project milestones and completion deadlines have led our clients to ponder who is liable for these delays and how do the contracting parties ease the consequences from such unprecedented delays.
Obviously, project delays are not a new phenomenon – they were common enough before COVID-19 and its associated impacts on the economy. Delays, whatever the source, inevitably cause loss to all stakeholders on a construction project. But not all delays matter when it comes to claims and remedies available to the contracting parties in dispute resolution, where the main focus is on material delays impacting the entire project and on delays the claimant can credibly prove.
Most jurisdictions interpret actionable delays from the contract documents for the project. Without question, reviewing the contract is where one should start before pursuing any remedies for delay. Delay remedies might only buy you extra time, or a time extension plus your additional general conditions, should they be outlined in the contract. Some forms of delay remedies may be barred by the contract’s express terms and may be enforced adversely by the courts when such contract terms are indisputable. Conversely, delay damages that are contractually allowed, such as overtime required by the delays—are usually actionable and recoverable. However, not only the contract terms, but applicable state law, may affect the outcome.
There are other delay remedies that may not be expressly allowed by the contract but may be recoverable if they occurred on the “critical path” of the project schedule and were not caused by the claimant. The term “critical path” is familiar enough as an industry term but is often mistaken as a determinative legal principle.
Therefore, it is imperative to distinguish your burden of proving a material and compensable delay from the critical path methodology. The methodology behind critical path is one way of demonstrating that the delay is actionable, and ideally with testimony from an expert with contemporaneous evidence displaying the impact on the overall project schedule completion date.
Critical path is not all you will need – causation is a key legal element that must be proven along with facts establishing delays on the critical path. A compensable delay is usually a delay caused by someone else on the project, so a contractor cannot cause its own critical path delays and credibly prove it is entitled to delay damages. For example, if the contractor was carelessly late in ordering its materials, the contractor will have a much harder time proving that supply chain complications were to blame for blown completion dates on the critical path. Additionally, a project owner that fails to implement or require a safety protocol for protection of all project personnel from COVID-19 would not be able to prove it was really the contractors who caused an outbreak and then keep the project shut down ad infinitum.
These standard guidelines governing delay claims depend equally upon diligent and timely documentation of the delay. Communication must be in writing confirming the causes of delay and consequences should be contemporaneous and immediate. Delay documentation should also be both detailed and timely enough to put key stakeholders on notice that the delay will impact the critical path, further citing specific contractual provisions that trigger available remedies for the delays. On the other hand, after-the-fact and imprecise documentation of the delay carries almost no sway with judges, juries, and arbitrators and tends to suggest that the delay is neither material nor actionable. Proving a material and actionable delay, therefore, always requires favorable contractual terms, critical path impact, favorable law, and believable documentation demonstrating timely notice and no fault for the delay.
Written by Jeremy Power, a lawyer in our Toronto office