Construction Delay Claims: Are You Able to Make a Claim?
Construction delays are common. In fact, it’s not so much a question of if, but when.
A well-drafted construction contract must anticipate project delays caused by action or omission and provide clear parameters for making a claim based on the type of delay and its overall impact.
Notwithstanding contractual and legal protection, it’s vital for project owners and contractors to take steps to prevent delays if possible. Prevention is always better (and cheaper!) than cure.
Proactive steps will mitigate some key triggers of common project delays. However, sometimes a claim is just unavoidable. In this article, we’ll set out when you can make a delay claim, how the process works, and some of the pitfalls to avoid.
What is a Construction Delay Claim?
A construction delay claim is based on a construction delay that has caused the project to run over time or stall completely.
To bring a claim, you must demonstrate and evidence a delay – there are different types and classifications, such as critical and non-critical – and its financial impact.
Part of this evidential process involves identifying the party responsible for the delay and the reasons why, i.e., a contractor who has completed a stage of the project, but the workmanship is sub-standard and must be remediated.
Not every delay gives rise to compensation; you must have grounds and follow the process set out in the construction contract. The purpose behind the claim is to compensate for financial loss, and not every delay creates legal liability.
Identifying Delays: Causes, Types, and Impacts
To support a successful claim, a delay must be critical, non-excusable, and compensable. Without this trio, it can be hard to demonstrate a case for financial loss.
Distinguishing Critical vs Non-Critical Delays
Delays are inevitable in any complex or long-running construction project. Some delays just must be tolerated, and not every delay will set back the completion date or cause a milestone to fail.
If there’s a delay, the first step is to consider whether this is ‘critical’ or ‘non-critical’.
A non-critical delay is one confined to certain activities or areas of the development; a delay that won’t impact the project completion date. There are other ways to address non-critical delays, such as change orders.
Being able to categorise a delay relies on a transparent construction contract with a schedule of works that sets out the build programme, containing detailed descriptions of the work planned.
It should clarify the ‘critical’ activities to take the project through to completion. If a delay impacts the critical pathway, then it’s likely to be classified as a critical delay and one which may give rise to a compensation claim.
Excusable vs Non-Excusable Delays
There’s a never-ending list of delays that can occur during construction contracts. One reason for this is that they tend to be long-running, and another is the complexity of the works with multiple different parties and contractors.
Some delays are excusable, which means they’re outside the control of that party. Severe weather is a good example of an excusable delay – that’s something no one can control.
Other excusable delays include disruption caused by national strikes or terrorist attacks, pandemics, and sudden regulatory changes.
Non-excusable delays include defective project planning, leading to predictable difficulties, as well as unplanned changes to the original design, faulty workmanship, insufficient manpower, and poor contract management.
The distinction between excusable and non-excusable delays is vital. A contractor cannot be held liable for delays that were not within their control or for which they weren’t responsible.
A construction contract should be the first point of reference to establish the nature of any delay. Typically, there should be a clause that lists risks and events outside the control of the parties, which are therefore excusable.
A non-excusable delay can form the basis of a claim.
Grounds for Compensable Delays and Time Extensions
In addition to being critical and non-excusable, a delay must also be compensable, allowing the claimant to receive compensation for the extra time and costs incurred to complete the project.
A non-compensable delay can be when a contractor has caused it themselves due to error, omission, or negligence. If a project owner has caused a compensable delay, then a contractor is likely to be able to sustain a delay claim.
A construction contract almost always builds in some time extensions to allow for slippage.
Delay Analysis: How Delays Are Proved
A non-excusable and critical delay may seem blindingly obvious to a claimant, but it’s necessary to prove that the project would have stayed on time were it not for the act or omission of the respondent. To support a delay claim, causation is vital.
You must evidence that the contractor caused the delay, and it’s impacted the critical path of the project, meaning completion won’t be at the specified time.
Usually, an expert witness is instructed to undertake an in-depth delay analysis. There are various protocols which an expert can use, and it’s their job to choose the most appropriate method.
Some of the options are Prospective Analysis, Retrospective Analysis, Impacted As-Planned and Time Impact Analysis (TIA).
The right analysis for the claim will depend on factors such as the size and complexity of the project, as well as the quality of the available records.
Documenting and Notifying: Steps to Start a Claim
1. Gather Evidence
It’s vitally important to gather all relevant documentation to support the claim as the first step in the process. This record will ultimately determine the success or otherwise of your claim, and whether it’s even worth bringing.
Relevant documents include the construction contract, the critical pathway, any ancillary schedules, progress reports and updates, and correspondence that supports your position.
2. Have an Expert Review the Contract
A well-drafted construction contract will set out the protocol for handling delays so it’s essential to follow this as part of the claims process, including adherence to any deadlines.
What the contract says or doesn’t say on acceptable and unacceptable delays is also pivotal in how the claim will be presented.
3. Contact the Contractor
It’s usually a contractual requirement that you put the other party on notice of a delay claim. If nothing else, this should open a process of negotiation which could lead to a satisfactory settlement.
A contractor is usually sent a notice as detailed in the construction contract. The notice should include details of the claim, supporting documentation, and the financial impact of the delay.
Many construction contracts require that a non-completion notice is issued before deductions may be made from the final accounts.
4. Expect Negotiations
Issuing a non-completion notice will often prompt a dialogue aimed at finding a mutually satisfactory resolution. Contractors will often argue that they were entitled to a time extension to mitigate or completely remove liability for damages.
Dispute Resolution Pathways: ADR, Litigation, and Alternatives
Negotiation is often the first and preferred route to resolve a costly delay; however, if negotiations are not expertly guided, they can themselves become the subject of delay, thereby compounding the problem.
Before resorting to litigation, Alternative Dispute Resolution may be the best option. It avoids court, is much quicker to access than waiting months for a court hearing date, and it’s much more cost-effective.
The court will usually expect to see an attempt at ADR before litigation, even if it’s unsuccessful. If you skip ADR, then a claimant can incur cost penalties for unreasonably refusing to engage in the process.
ADR is a broad church and includes adjudication, mediation, and arbitration. A legal expert is the best guide for determining the most appropriate choice.
Litigation should be a last resort because it will considerably add to the existing delay, and it’s very expensive. It’s also a public process, unlike ADR, making it harder to preserve commercial relationships with others in the contractual chain.
Financial Remedies: Damages, Extensions, and Termination
The most appropriate remedy from all the options in a delay claim depends on the state of the project and the specific circumstances of the delay.
Financial damages are one option and the most common form of compensation. A monetary award should put you in the position you would have been in if the delay hadn’t occurred.
Construction contracts often make provision for liquidated and ascertained damages (LAD). This sum is predetermined and saves the claimant from the time and trouble of proving their financial losses.
Calculating LADs is easier than it sounds. Punitive figures risk being deemed invalid by the court. Regardless of the basis for a financial award, the claimant still has an ongoing duty to mitigate their losses.
Some project owners want to maintain a working relationship with the contractor so that a time extension can neatly sidestep losing a valuable connection and the time and expense of finding a replacement contractor.
Even though the overall project completion date will inevitably slip back, an extension can offer a practical solution. It also doesn’t close the door to LAD if the new deadline is missed.
Termination of the contract is a last resort, but it can be the best option depending on the specific circumstances, allowing the project owner to regain control and still potentially recoup financial losses. However, finding a new contractor is not quick.
The entitlement to terminate will depend on the contract wording and must be executed properly; otherwise, the contractor may be able to mount a valid claim to challenge it.
Managing the Claim: Compliance, Documentation, and Pitfalls to Avoid
Construction claims are complex and sometimes difficult to prove. A delay claim is not the time to find that records and documentation are patchy. Third-party experts can only conduct delay analysis methods on what is available.
Maintaining accurate records and a proper account of all communications is vital to support a claim later, and it’s a relatively easy pitfall to avoid. Your case must be reasonable and able to be substantiated.
Compliance with proper procedures is another common hazard in the claims process. Even if your claim is valid, you can invalidate it by not following the written notice procedures and timelines detailed in the construction contract.
A delay claim is not a free-for-all; if you haven’t mitigated risks, then expect some bounce back from the respondent, which might dent the amount of damages you receive.
Mitigating delay risks begins from day one with proactive communication and forward-thinking workarounds when difficulties arise.
Refusing to negotiate, avoiding ADR, or rejecting reasonable settlement offers are all black marks as far as the court is concerned. Even if you can substantiate your claim, you may still be penalised.
Why Work with a Specialist: Legal Guidance for Delay Claims
It’s perhaps natural to think that you don’t need legal advice in the early stages of a delay claim. However, expert input is vital to protect your position and handle pre-claim negotiations, which can be fruitful if conducted by a skilled third party.
In complex cases where multiple delays occur and the contractor is counterclaiming, professional legal advice can mean the difference between success and failure.
Frequently Asked Questions
What Is the Penalty for Construction Delay?
The penalty for construction delay is typically referred to as liquidated damages. These are pre-determined financial penalties specified in the construction contract. Liquidated damages can refer to the completion date and individual milestones on large, complex projects. The acceptable reasons for paying damages are usually defined in the contract.
What Are the Consequences of Project Delays?
Construction project delays cause increased costs, impact works elsewhere on site in a domino effect, and may lead to legal disputes. Increased costs arise from the requirement to hire a replacement contractor, financial penalties, or delays to the completion date, resulting in loss of income from sales or rentals.
Ready To Contact Helix Law for Expert Legal Advice on Your Construction Delay Claim?
Managing financial losses flowing from construction delays starts with a robust contract, but this won’t always save the day.
Expert legal advice will ascertain the type of delay, who’s caused it, the financial impact, and whether it’s critical or non-critical. A specialist can navigate negotiations and dispute resolution to a successful conclusion.
Get the right help in this complex legal area with the experts at Helix Law.
