CHAPTER III – Construction Delays

and Dispute Resolution

 Causes of Delay
 Delays are caused by:
 Contractor:
 If he fails to complete work by completion date due to his fault then he is
in breach of his contractual obligation and he will be liable to compensate
the owner for any loss incurred. Ex: material did not arrive on time, labor not here on time, subcontractors
did not do their job properly and we have to redo the work.
In these cases the work has to be compensated by the contractor
 Client or owner In case something is not clear in the general conditions, the
owner or designer has to clarify that to the contractor, if the
 Delays in issuing instructions on time designer does not clarify on time, delays occur

 Modifications in work or addition of new tasks by clients

 Failure to supply material on time In case the owner is providing the material
 Factors outside control of both parties Damages are shared

 Natural disasters, unexpected weather, war, etc.

Earthquakes, floods, war Ex: region where it's always sunny, unexpected storm

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 Types of Construction Delays
 Critical / Non-Critical
 A critical delay affects the progress of the entire project (end date or
milestone)
 Excusable / Non-Excusable
 Excusable delays are due to unforeseeable events beyond contractor’s or
sub’s control such as labor strikes, floods, fires, unusual severe weather,
etc. Labor strikes at the level of the project (labours are nor happy or not paid enough) are not excusable, it has
to be at nation country level (here the owner is not at fault so he provides extra time, but NOT extra money)

 Excusable delays are usually granted a time extension if not stated

otherwise in the contract documents.
 Examples of non-excusable delays are late performance of subcontractors,
untimely performance by suppliers, a project-specific labor strike, etc.
Non excusable delays are contractor's fault, since the owner here is not at fault he will not provide time
extension nor financial compensation

Excusable delays: the owner gives a time extension for the contractor
but does not compensate financially because it’s neither of their fault

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 We are interested in identifying concurrent delays because we want to know
what to do if one delay is for ex excusable and the other is compensable

Types of Construction Delays

 Compensable / Non-Compensable
 A compensable delay is where the contractor is entitled to a time extension and to
an additional compensation When the owner is at fault or added changes
 Only excusable delays are compensable Excusable is embedded within compensable,
compensable = excusable (time) + money

 Examples of compensable delays are differing site conditions, errors/omissions in

plans and specs, owner-directed changes, constructive changes, etc.
If the contractor asks for clarifications about the drawings
 Concurrent / Non-concurrent or specs, and the designer or owner does not send them on
time → compensable delay
2 delays happening 
at the same time
Concurrent delays are separate delays to the critical path that occur at the same time.
 A carefully drafted contract should address this potential occurrence.
 Usually, if excusable or compensable delay occurs concurrently with non-excusable
We always go 1 level down
E + NE = NE delay, the delay will be treated as non-excusable; and if compensable delay occurs
E+C=E
Same type is not a prb
concurrently with excusable delay, the delay will be treated as excusable
 If the same delay has two separate causes then it can not be classified as a concurrent
delay Same activity delayed for 2 reasons

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Critical Non-critical
vs.
delays :

Construction schedule start day day

:
end
57

B Activity duration
O 5
7 2 915 15 18 =
completion day
A
S ↳ D
6
7 E
3
.
S &

-Cy

* Schedule of values : Determines each month the amount

of work to be done & the
budget (cost) of that work.
The schedule based on the construction schedule
of values is prepared
A requires 5 days to be finished & costs 5000$ know that
for day 1 2 3, 4 , &5
of the month would
if

·
ex : = we we
, ,

need 1000$ each

day . (this is how the C S .
.
helps with
preparing the S .
.)
V

Path
* : Series
ofactivities that are connected
together
path1 : ABDE
length of path = 5 + 2+ 6 + 3 = 16
days
path2 : ACDE
length of path = 5 + 4 + 6+3 = 18
days Longest path = Critical Path

=> A C D &E
, , ,
are critical activities

citical
activity : an
activity that can't be
delayed without delaying the
project

* The only activity that is not critical in this

project is B
,
B can be
delayed to a certain extent without
delaying the project
 Concurrent Delay Example
 In assessing delays during the same timeframe, the analysis
should be performed on a day-by-day basis to correctly
ascertain the exact activities that caused the delay and the
correct magnitude of those delays.

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 Concurrent Delay Example

Started as planned

Started on time, work was stopped for 3 days Because as of day 5 path A
have a 3 day extra margin

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delayed without delaying the project
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 Concurrent Delay Example

THIS IS NOT A CONCURRENT DELAY

delays did not happen at the same time
+ Path B caused the delay
Analysis is done day by day

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 A construction schedule can be represented as a bar chart or network
(links and arrows connecting the activities, as we did before)

Analyzing a Schedule for Delays

Bar chart: representation of a construction schedule

 The analyst should 35

compare the as-planned

schedule with the as-built
diagram or chart (showing
actual progress of work)
 Delays are analyzed by
moving chronologically
through the project
timeline
When analysing a schedule we move chronologically &
day by day to determine which activity caused the delay Expectations Reality
If our analysis is not done day by day, we would think that D Plan: 35 days
delayed the project 25 days, but in fact D was the only activity Actual: 60 days
that was not delayed at all

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 Analyzing a Schedule for Delays
Activity A might have been delayed due to modifications done by the owner or due to misestimation of the activity’s
material quantity also in case one of the four trucks that we are supposed to work with is not working anymore

B was delayed by A
+ delayed by itself

C started on time, but there

was a stoppage

D did not cause

any delay

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 Analyzing a Schedule for Delays

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 Inefficiencies Caused by Delay
 Shifts in the Construction Season: a delay can shift work originally scheduled
for one season into a different season.
 Example: a contractor plans to finish all concrete operations before winter
season and then due to a previous delay the concrete has to be continued during
a cold weather.
 This leads to an increased cost for placing concrete due to modifying the concrete
placing techniques to fit the new weather condition.

 Availability of Resources: delays can affect the availability of resources in the

areas of manpower, subcontracts or equipment. Plan to use a certain equipment after delay those
equipment might be reserved for other projects
 Example: an earth-moving contractor plans to excavate using his own scrapers
but due to delay the scrapers are committed to another project and are no longer
available
 The contractor has to rent equipment which means additional costs.

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 Inefficiencies Caused by Delay
 Additional Manpower: delays to certain activities may
force contractor to work on more activities than planned at
one time and or to change the distribution of manpower
over the phases of project which leads to undesirable
fluctuations in crew size on site.
 Sequencing of Work: delays can force the contractor to
redefine the order of work to keep the project on time
which might affect contractor’s productivity due to spatial
interference of crews.
Since it's the job of the contractor to find solutions in case of delays, one of the
solutions would be reshuffling activities or changing the sequencing of the work

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 Contractor’s Damages due to
Delays G&A overhead = GCC (rental of HQ, salaries…) (not only specific to this project)
Project overhead (preparing the site, bringing utilities, supervisory personnel…)

 Extended Field Costs: additional labor, material, and equipment costs

resulting from project delays.
 Home Office Overhead: part of the markup allocated to a project
should cover office overhead and if there is a delay then this overhead
cost is distributed over a longer period of time. Personnel is spending more time on this project
Delay in one activity would cause further delays in other
 Inefficiency or Lost Productivity Costs activities
 Acceleration Costs Ifcontractor
the contractor exceeds the duration agreed he must compensate to the owner so the
usually tends to accelerate the work to finish on time which costs them as well

 Idle Labor Cost / Escalation of Labor and Equipment Costs /

Price Escalation in Material Cost and Additional Material Storage
L
the Labor is here but
they can’t start yet
Costs: delay shifts labor into a more expensive time period than that
originally scheduled and shifts equipment usage into a period of higher
rental rate. Material price might go higher after some time
(such as steel)
Storing the bought material also is additional cost

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 Acceleration
 A project is accelerated when there is a need for the contractor to
complete some portion of the work in less time.
 Main reasons behind accelerating work:
 Early use of the building Owner wants to finish earlier than agreed
 Avoiding delay damages if behind required completion date. Project is delayed → contractor
pays for the acceleration

 Costs of accelerating the work:

 Additional material and equipment costs,
 Labor costs,
 Other miscellaneous costs such as housing of additional staff and labor,
administrative costs of planning the acceleration and revising the schedule,
additional cleaning costs, running additional temporary power, etc.

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 Acceleration Example
 A manager should carefully plan what tasks are to be accelerated
 Shorten the time on the critical path with the lowest cost
 The project below is currently expected to finish in 32 days and the Owner has
directed the Contractor to accelerate the work such that the project finishes in
25 days.
Cost of
delay/day

# of days
of delay
possible

12 days

Critical path: ABG Although G can be shortened by 3 days, keep in mind that
after shortening it by all 3 days the critical path become
CDEF (30 days) instead of ABG (32 days → 29 days)
32 days The best choice is to accelerate G by 2 days only

30 days

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 Acceleration Example
 After accelerating activity G by two days:
 Now there are 2 critical paths and both need to be accelerated in order to finish the project
earlier

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 Acceleration Example
 The Total Cost for project acceleration by 7 days is according to the table
below $ 46,000. If the owner requested the acceleration he has to pay 46K$ for it, but if the
contractor delayed the project he has to pay for acceleration

Acceleration can be initiated by the owner or by the contractor

(maybe in case of delays), the initiator is responsible of the cost

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 Owner’s Impact Costs of
Delays In case of delays both owner & contractor are affected

 Examples of additional costs resulting from delays:

 Reduced labor productivity due to disruption on site
 Additional costs of labor and equipment resources required
to recover the delay We have to assign more people & more equipment to make up for that delay
 Claims from subcontractors who have also been affected by
the delay If sub 1 is delayed sub 2 gets delayed then sub 2 might ask for a compensation
 Increased material costs due to material cost escalation Material (steel)
unit cost is higher

 Increased cost of the contractor’s site staff and supervision More time => more money
 Loss of revenues generated from operation of completed
facility in case of delayed completion
If the project is expected to generate revenues (hotel, mall…) then the owner loses these revenues / day

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 Liquidated Damages Compensation of delay for the owner (mentioned as x$/day of delay)
X$/day based on expected generations or revenues of the building

 The penalty stated in the contract must be a genuine pre-estimate of the employer’s
likely loss or a lesser [Link] amount has to be realistic (ex: expected to generate 10000$ a day, state 10000$ or even 8000$ per day of delay)
because the value is written in the contract so if it is very high the contractor might be encouraged to increase his bid price

 The sums usually agreed on in contracts are small compared to the potential loss by
owners but a realistic figure may act as a disincentive to potential tenderers or result
in over-pricing of bids by contractors. The owner might even lose a good bidder because the liquidated
damages are so exaggerated
Unimportant
 It is usually immaterial whether the owner’s actual loss ends up to be greater or less
than the agreed figure: If the actual loss > agreed loss, the owner can’t change the amount agreed on in the contract
 As the owner and contractor enter into contract, they both agree on a liquidated damages rate in the case
of a contract breach.
 The accuracy of the pre-estimate is to be judged and agreed on at the time the contract is made not at the
time of the breach.
 Liquidated damages are desirable in a contract when it is difficult or impossible to
accurately determine the actual damages that the owner would incur particularly on
public projects.
If they didn't agree on liquidated damages then we should hire a 3rd party to estimate the
loss of the owner (much more complicated and complex, takes more time)

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 Liquidated Damages
 When preparing an estimate for liquidated damages, an owner should consider the cost for
project inspection, cost for the owner’s staff, for maintaining current facilities, for additional
rentals and storage, lost revenues, etc. Lost revenues is a major factor of liquidated damages, but also other things must
be taken into consideration such as A/E fee for extra time and other staff
 Owners must recognize that liquidated damages do not necessarily bear a direct relationship
to the Contract amount. Ifhigher
a project costs 1M$ and another one 3M$, it doesn’t mean that the
price would have a higher liquidated damages amount
 Liquidated damages can sometimes be specified on an hourly basis such as for critical
highway projects where opening the roadway for traffic is of great importance. Public project (time
is more important)

 They can be graduated to reflect the owner’s increase in damages as the delay continues:
 Liquidated damages can be $1,000/day up to a certain date or for a defined number of days, and then
may increase to $1,500/day for delays beyond this date.

Time extensions must be taken into

consideration meaning that if an extension or
change order took place, the contractor
shouldn't be paying liquidated damages for that

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 Determining Responsibility for
Delay
 Contract Requirements: Refer to General and Supplementary Conditions of
the Contract and most specifically refer to clauses that address delays and time
extensions such as the changes clause, differing site conditions clause, time
extension clauses and others related to claims. Claim: request for time extension or
money compensation
There's a time limit after which a claim can't be filed, it would be
 Time limit for filing claims hard to determine who caused the delay after a long time
 Description of the claim content: scope definition, cause of claim and explanation, and detailed
breakdown of damages/ extra costs.
 Gathering the Facts: necessary documentation to assign responsible party for
the delay: Supporting the claim by extra evidence (specs, emails, photos... )
 Design drawings, preliminary schedules, updates and revisions, change orders, daily reports,
emails, site photos and videos, etc.
 Analyze documented facts to determine the initial cause of the delay and then
consult with the contract clauses to determine who is responsible for that delay
and whether it is excusable, compensable or none.

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 Changes-Change Orders
Variation orders
Addition or reduction of contract prices as well
 Include additions or deletions from contract, changes in methods or
owner-provided materials, changes in contract time requirements, etc.
 A contract can only be changes by a change order
 In written form, prepared by A/E under instructions from the owner.
 The owner can change the contract unilaterally
From one side
but cannot unilaterally
settle the price for a change The owner can change whatever they want without consulting with the contractor,
however, can not decide on the price for this change (contractor has to)

 Contractor cannot change contract unilaterally, but can only choose not
to agree with sum of order change. His choice are to:
The contractor can't change anything without consulting with the owner, but if the owner changes something believing
that it would cost a certain amount and it would cost more then the contractor can do any of the following:
 Sign change order agreeing to price Agrees with owner (settles for owner’s price)
 Change order (AIA A201)
 Perform work and make claims upon completion Perform change then submits
proof that it costed more than
 Construction change directive (AIA A201)
 Stop work and be charged with breach of contract (not realistic) No contractor would stop

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 Docs that prove
why it costed more

To be settled
later on

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 Standard format for CO

Project title

Indicates that initial conditions (general supplementary) are still applicable

Here, we also have the architect's signature

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 CLAIMS
 Contract should specify the exact information that contractor
needs to submit when asserting a claim such as:
 A clear narrative of the claim with supporting documents Description of exactly
what happened

 An explanation why the claim item differs from that already required by
Contract
 References to the specific Contract clauses that apply.
 An explanation of the cause for the claim
 A clear definition of the impacts associated with that claim (extra work,
overtime, delay)
 A detailed breakdown of the damages or extra costs with supporting
information

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 If the contract states that the owner in requesting a no damage for delay claim then even if the delay is compensable
(contractor entitled to have money compensation & time extension) the owner will only provide time extension

CLAIMS
 “No-damage-for-delay”
provision in a contract: the owner
This should be
stated in the will not be liable to the prime
contract such
that if the
contractor or any subcontractor
contractor for monetary claims arising out of
wants to
change it, he work delays. The contractor’s sole
must do so
before signing
remedy in such contracts is an
extension of contract time.
 In case of no liquidated damage
More complicated →
clause in contract, the owner will
owner has to hire a have to seek actual damages
3rd party
compensation for a delay caused
by a contractor:
 The owner should document
all damage items to the
maximum extent possible.
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 Force method of dispute resolution: "dispute, review, board" or "dispute, adjudication, board"
A review board where we would have one person or more designated or suggested by the contractor and another one suggested by
the owner, who would be hired from the beginning of the project (they would be following up from the beginning of the project) so
they would be more knowledgeable of the details of the problem and they would unite the disputes (but it’s costly because they
would paid throughout the project timeline)

Methods of Dispute Resolution Disagreement between contractor & owner

We always try to solve if we couldn't then we have to reach for other mothers

 If a claim is rejected and the rejection is not accepted by

the claimant, it becomes a dispute.
 The dispute resolution processes in construction are:
 Litigation: standard means of settling construction disputes
in courts Going to courts
Last thing we want (might take a very long time) + costly (lawyer)


T
Arbitration: reference of a dispute to one or more impartial
Commonly used
in construction
expert persons for final and binding determination
Mediation: less formal procedure than arbitration where an
>

impartial mediator helps parties each an agreement but can
not force resolution
Arbitration & Mediation: hiring a third party (one expert or more) that is not biased to look into the matter and judge who is
right or what should be the final resolution
For arbitration the final judgement has to be followed, however, for mediation we might not abide by the resolution (less
formal) so it’s not binding unless they both agree

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 1) mediation not satisfied? → 2) arbitration still not satisfied? → 3) litigation

Arbitration
 Dispute is judged by professionals experienced in the construction industry in a
private and informal setting.
There's a certification for it, it's studied not everyone can be an arbitrator (usually CMs study it)

 Court decisions are open to lengthy appeals resulting in long and costly delays in
settling many cases however the result of an arbitration hearing cannot be
changes without the consent of both parties to reopen the case.

 No contract clause is necessary for arbitration, because a dispute can be

arbitrated at anytime by mutual consent of the parties.
Sometimes such things are mentioned in the contract

 Most contracts provide that arbitration shall be conducted under the

Construction Industry Arbitration Rules as administered by the American
Arbitration Association (AAA).

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 Arbitration Procedure The arbitrator fees are covered by both parties

 Party wishing to initiate arbitration makes a written demand to the other side stating
the nature of the dispute, the amount involved, and the remedy sought, and requests
that the matter be submitted to arbitration. (Two other copies should be filed with the
Architect and with AAA)
 If the other party agrees to arbitrate, a board of arbitration is selected based on their
experience in the construction field and impartiality to the subject at hand.
 Each party can be represented by a counsel and is free to call witnesses and present
evidence, and is entitles to question the other party and its witnesses.
 A written copy of the findings and award, signed by arbitrators, is sent to each party.
 Arbitrators should treat everyone formally and identically and must assure
themselves that the only evidence they receive comes from the parties.
 Both parties are bound to the decision of the arbitration board:
 The decision can be submitted to the appropriate court for an order confirming the award.
 Once the award has been confirmed, it has the same legal force as any other court
judgement and can be enforced, if necessary, in the usual fashion.

> Endorsing it so that if one party does not abide (it becomes legal)
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 More about Arbitration
 The AAA does not act itself as an arbitrator however it can handle the
case administration for a specified fee:
 Preparing a list of competent arbitrators
 Furnishing rules for the guidance of the arbitrators
 Appointing arbitrator(s) if asked

 Typical disputes might arise over interpretation of contract, drawings

and specs, monetary adjustments for mistakes, claims for liquidated
damages and delays, quantities to which the bid unit prices should be
applied, etc.

 The fee for arbitration is a percentage of the original claim (not award).
To avoid that the arbitrator decides on a higher value just to get more money

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 More about Arbitration
 If the parties wish to negotiate during the hearing then they should be
encouraged:
 Arbitrators should not be a party to such negotiations and if agreement is reached,
then arbitrators can make this agreement their award.
Before going to an arbitrator both parties try to settle first, if they do not reach any agreement they reach to a third party. Even
after hiring the arbitrator if both sides try to negotiate again it should be encouraged, if the negotiation reaches a common ground
then the award is the agreed amount
 Arbitrators have 30 days from closing of the hearing to send decisions
to the parties. Setting a deadline no that it doesn't take a lot of time like courts

 The decision should simply state only the award on each claim and
should not describe the findings or reasons behind the award because it
could lead to a challenge Because whoever isn't satisfied will try to negotiate with arbitrator
 Example: “Party A is to pay $145,000 to party B under claim #1 and pay nothing
under claims #2 and #3.”

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 Mediation
 It is a less formal procedure than arbitration and is an alternative course of
action in the early stages of a dispute.
Mediator

 A mutually agreed-upon and impartial third party will assist both parties in
reaching an agreeable settlement but lacks any power to impose a decision
Mentioned in the contract
 Mediation can be provided for by contractual agreement or resorted to by
mutual consent.
Agreed upon later on

 A common contractual clause in recent years requires that the parties first
mediate disputes and escalate their actions to arbitration only in the event that
resolution can not be found through direct discussion or mediation.

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 Mediation Process
 Parties to a dispute submit to the mediator(an expert or consultant)
a summary of their positions plus pertinent documentation
 The mediator meets with the two sides together and separately, and
tells each party about the flaws and strengths of its case without
revealing anything about the other’s position.
 The mediator suggests a settlement to both sides, which they can
accept, reject, or negotiate. It is enough that one party rejects the decision to say that it's rejected
 If mediation fails then arbitration or litigation
 If agreement s reached, then a written dispute settlement is signed
by both parties

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 Litigation The project is still ongoing when these methods are applied

 Offers opportunity for a single forum when there is a common factual

basis for disputes involving several parties Not private anymore => public (in the court)
 All parties may be present and everything is head in the same forum
 Parties can appeal application of legal procedures Which makes it lazy & take forever
 Disadvantages:
 Time (it usually takes from 2 to 6 years for a complex case to reach
trial)
 Money (paid to attorneys)

 The decision is made by people who are not knowledgeable about

construction The judge is not a construction expert however in the previous methods the arbitrator or
mediator are more knowledgeable

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