Construction Claims on Owner-Furnished Items

On a construction project, an owner may assume responsibility for the delivery of equipment, materials, data, or other items or information to a contractor.

Delivery of such “owner-furnished items” may be precedent to certain contractor activities and/or on the critical path of the project. Defective or delayed deliveries of these items are valid bases for claims as they may impact timely completion by disrupting the efficient execution of the contractor’s work. It is well established that a contractor is not only entitled to a time extension for late or defective delivery of owner-furnished items but is also entitled to an equitable adjustment for losses incurred due to resulting delay or disruption.¹

This is the first of two blog posts on owner-furnished items. This post considers legal implications of defective or delayed deliveries of owner-furnished items, and the second post includes reasons why owners may choose to furnish items, where owner-furnished equipment or materials are typically used, and considerations of the cost-benefit of the owner choosing to furnish items.

Examples of defective owner-furnished items include defective models or patterns, erroneous information or drawings, erroneously marked parts, damaged equipment, and equipment in disrepair.

A sample owner-furnished equipment contract clause is set forth below:

The Owner shall, at its own risk and cost, supply and deliver to the Contractor all Owner-Furnished Equipment to the warehouse or other designated storage site in proper condition and ready for installation at the site, in accordance with the time schedule stated in Appendix 4 of the Contract or such other schedule as may be mutually agreed by the Parties.

If the owner delays providing owner-furnished items, the contractor may be able to recover its delay damages. If the owner is negligent or willfully delays the furnishing of such items, it may be held that the owner has breached its implied obligation not to interfere with contractor performance, and damages may also be recovered for breach of contract. If the owner expressly or impliedly commits itself to furnish materials by a specific date, any critical path delay from that date may entitle the contractor to recover lost time and time-related costs—even if the owner diligently attempted to meet the deadline.

Concurrent, contractor-caused delays or excusable, non-compensable delays such as a strike or unusually severe weather may complicate proof of entitlement for such recovery. Where the contract does not contain a specific date, the owner must supply the items within a reasonable amount of time for use in the ordinary and economical course of performing the contract—but it may be able to escape all liability if it shows that it diligently attempted to obtain and furnish the property.

For example, if the owner fails to order reinforcing steel early enough and in sufficient quantities to secure timely delivery, it may be liable for the resulting delays and time-related costs if the delays affect the critical path of the contractor’s schedule. As another example, if the owner contracts to furnish steel piling, and installation of piling is a critical path construction activity, it may be liable for late delivery if it delays placing an order because it is negotiating with the piling manufacturer.

However, the owner may not be liable for late delivery if both parties knew that the material or equipment might be difficult to obtain. An owner may not be liable for delivery delays if it was unaware that the material would be difficult to obtain, promptly placed an order, and diligently attempted to obtain delivery. The owner bears the burden of proving an excusable reason for delayed delivery.

In U.S. government contracts, the changes clause specifies that changes may be made to “Government-furnished facilities, equipment, materials, services or site.” This gives the contracting officer wide latitude to alter this aspect of the performance. In Koppers/Clough v. United States,² the Court of Claims stated that a delay in furnishing government property under a clause not specifically mentioning such a situation might well be a change in the manner of performance, permitting compensation under the clause. However, the contractor did not recover because its contract contained a specific—and very restrictive—government property clause that the Court held overrode application of the changes clause.

Some private agreements recognize the possibility of changes to “owner-furnished facilities, equipment, materials, services, or site.” These agreements may also recognize that there may be a cost or schedule impact because of such changes.

¹     Drexel Dynamics Corp., ASBCA 9502, 66-1 BCA ¶ 5472, 652 BCA ¶ 5076; L. L. Hall Construction Co. v. United States, 177 Ct. Cl. 76 (1953).

²    Koppers/Clough v. United States, 201 Ct. Cl. 344 (1973), 15 G.C. ¶ 234.

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