Non-excusable, Non-compensable Delays: Part 2

Delays that are attributable to the contractor most often stem from five major causes: (1) failure to adequately evaluate the site or design; (2) contractor management problems; (3) inadequate contractor resources such as cash, material, or labor; (4) construction defects; and (5) subcontractor failures.

Last week’s blog post discussed examples of delays that can result from the first two failures, and today’s post focuses on the last three failures.

Inadequate Contractor Resources
Often delays result from lack of contractor resources, such as labor force, equipment, and finances. Generally, delays due to inadequate labor are inexcusable.¹ If there is a labor shortage of a particular trade in the local market, and even if the contractor diligently seeks out the necessary workers to maintain its completion schedule, the resulting delay may not be excusable.² Sometimes the contractor may try to blame the owner for a labor shortage; for example, if there is an alien labor certification program³ or delayed notice to proceed.⁴ Costs of owner-caused labor problems may be compensable,⁵ but otherwise, delays due to labor disputes and strikes are typically excusable but not compensable.

Delays caused by failure to provide proper equipment are also chargeable to the contractor. Often contractors attempt to recover for such delays by alleging that the problems are attributable to the owner. However, a thorough investigation by the owner may prove that the contractor caused the delay. For example, in Appeal of Frank Rivera, Inc.,⁶ the contractor alleged that a delay was caused by a differing site condition, but at trial it was demonstrated that the contractor failed to provide the proper equipment in accordance with the approved dewatering plan.

Contractor financial sources are often strained and may result in project delays. Generally, the contractor’s financial inability to perform does not excuse its default.⁷ A subcontractor who is not paid the progress payments due may be entitled to suspend work until payment is received.⁸ Delays by subcontractors are generally attributable to the general contractor and, in most cases, are not excusable.

Federal construction contracts provide for termination when the contractor cannot provide reasonable assurances that the work can be completed in a timely manner.⁹ It may be that the contractor’s financial situation is such that it is unlikely to complete the work within the contract time. A contractor’s financial distress, however, may be caused by the owner. For example, the owner may cancel a loan commitment to the contractor¹⁰ or interfere with the contractor’s ability to obtain financing from other sources.¹¹ In some situations, delays by the owner may put the contractor in such difficult financial circumstances as to make a default termination improper.¹² Moreover, the owner may fail to make payments properly due to the contractor.¹³ But if the owner’s failure to make progress payments did not cause the contractor’s financial demise or inability to proceed, a default termination may be proper.¹⁴

Construction Defects
Defective and nonconforming work can also lead to delays that are attributable to the contractor. Delay caused by work that does not conform to the contract documents may be the result of defective material,¹⁵ installation problems,¹⁶ or workmanship defects.¹⁷ When removal and replacement of the nonconforming work are required, the project may be delayed. Such delays are neither excusable nor compensable,¹⁸ and the contractor may be terminated for default.¹⁹ However, when the owner agrees in the contract to oversee or supervise the contractor’s work, it may share the responsibility for defective work performed by the contractor.²⁰

Many defects in workmanship are only discovered after substantial completion of the project. Delays within the time period from substantial completion until final completion may be the responsibility of the contractor, but liquidated damages are often assessed to the contractor only until substantial completion, unless the liquidated damages clause clearly provides for assessment until final completion.

Subcontractor Delay
In general, the contractor is responsible to the owner for non-excusable delays that its subcontractors incur.²¹ However, if a second-tier subcontractor causes a delay, and the general contractor and first-tier subcontractor make diligent efforts to expedite the work of the second-tier contractor, the general contractor may be excused for the delay.²² Because the second-tier subcontractor’s action may be beyond the control of the contractor and not due to contractor fault or negligence, the contractor may be neither assessed liquidated damages nor compensated for such delay.²³

Many owners, especially state governments, undertake to prequalify the subcontractors performing on its projects. However, since the prequalification process does not guarantee the subcontractor’s solvency or ability to perform, a general contractor may still be liable for the delays of prequalified subcontractors.²⁴ On the other hand, when the contractor selects a supplier from the owner’s approved list, and the owner has inspectors at the supplier’s plant and the project site, if the materials prove to be defective, the contractor may be excused for the delays caused by the tearout and rework.²⁵

A subcontractor or supplier that delays the contractor in its performance may be liable to the contractor for the delay costs incurred,²⁶ such as liquidated damages that have been assessed to the contractor.²⁷ However, the contractor must be able to demonstrate that the owner’s assessment of liquidated damages was due to the subcontractor’s delay.²⁸ If the contractor contributed to the delay, it may not be entitled to damages from the subcontractor.²⁹ In any event, if the subcontractor is responsible to the contractor for delay, the damages recoverable against the subcontractor’s surety may not include prejudgment interest on a delay claim, because such claims cannot be computed with sufficient accuracy to be considered liquidated.³⁰

A prime contractor that delays a subcontractor may be liable to the subcontractor for its delay costs,³¹ which may include lost profits on subcontracts it could have obtained had it not lost its bonding capacity.³² The general contractor’s inexcusable delay may justify the subcontractor’s abandonment or refusal to perform.³³ However, the subcontractor must prove that the delays were due to the general contractor. If it fails to do so, the abandonment will be unjustified and breach the subcontract.³⁴ Also, if the subcontractor continues its performance after complaining of breach and delay to the contractor, the subcontractor cannot rely on the same breach to excuse its abandonment.³⁵

The general contractor’s duty to the subcontractors includes the responsibility to coordinate scheduling so that subcontract work may be completed within the stated contract time.³⁶ The general contractor may attempt to shield itself from liability for subcontractor delay damages by including a “no damages for delay” clause in the subcontract. If not waived by the contractor, this clause will be enforceable³⁷ unless exceptions are found to apply. For example, the delay may not fall within the terms of the subcontract no-delay clause.³⁸

If the subcontractor is affected by delays attributable to the owner, the owner may be liable directly to the subcontractor. For example, if the owner interferes with the subcontractor’s performance by restricting access to the work area, a cause of action may exist for the subcontractor directly against the owner.³⁹ In such a case, the owner may not avail itself of the protection of the no damages for delay provision in the subcontract.⁴⁰ Frequently, the subcontractor will bring its claim against the prime contractor, who in turn will seek indemnification against the owner.⁴¹ However, for most delay claims, the subcontractors will join forces with the general contractor to recover against the owner. Generally, the prime contractor may recover on behalf of its subcontractors,⁴² even though the prime contractor has not settled with the subcontractors.⁴³

However, some delays may impact only the subcontractor’s cost of performance. The general contractor may “sponsor” the subcontractor’s claim by acting as a conduit to the owner. In such cases, it may be proper for the prime contractor to proceed against the owner, especially if the contractor is claiming loss of overhead and profit on the subcontractor’s claim and is seeking to process it in accordance with the dispute resolution requirements of the prime contract.⁴⁴ However, certain government contract documents may preclude a subcontractor from pursuing the claim against the owner, even if the contractor sponsors the claim.⁴⁵

¹    Punton v. Supp Bros. Constr. Co., 143 Cal. App. 2d. 696, 300 P.2d 271 (1956).

²    Clyde Burton & Sons Constr. Co., GSBCA No. 3227, 71-2 BCA (CCH) ¶ 9152 (1971); Old Dominion Corp., ASBCA No. 11553, 67-1 BCA (CCH) ¶ 6347 (1967).

³    Hawaiian Dredging & Constr. Co., ASBCA No. 25594, 84-2 BCA (CCH) ¶ 17,290 (1984).

⁴    Clyde Burton & Sons Constr. Co., GSBCA No. 3227, 71-2 BCA (CCH) ¶ 9152 (1971).

⁵    Dravo Corp., ENGBCA No. 2950, 71-1 BCA (CCH) ¶ 8676 (1971).

⁶    Appeal of Frank Rivera, Inc., IBCA No. 1621-9-82, 84-2 BCA (CCH) ¶ 17,324 (1984).

⁷    U.S. Metal Prods. Inc., ASBCA No. 12041, 67-2 BCA (CCH) ¶ 6206 (1967); Amexicana Corp., ASBCA No. 14417, 71-2 BCA (CCH) ¶ 8886, 8990 (1971).

⁸    Watson v. Auburn Iron Works, Inc., 23 Ill. App. 3d 265, 318 N.E.2d 508 (1974).

⁹    U.S. Government Standard Form 23-A (Construction Contract), General Provisions, Clause 5, 41 C.F.R. § 1-16.901 23A (1983).

¹⁰    Southland Mfg. Corp., ASBCA No. 10519, 67-1 BCA (CCH) ¶ 6128 (1967) and 69-2 BCA (CCH) ¶ 7968 (1969).

¹¹    Tri-State Tool Co., ASBCA No. 16300, 73-1 BCA (CCH) ¶ 9886 (1973).

¹²    Ascani Constr. and Realty Co., VABCA No. 1571, 85-3 BCA (CCH) ¶ 18,272 (1985).

¹³    John R. Chrisman & Assoc., GSBCA No. 3248, 71-2 BCA (CCH) ¶ 9167 (1971); Pilcher, Livingston & Wallace, Inc., ASBCA No. 13391, 70-1 BCA (CCH) ¶ 8331 and 70 2 BCA (CCH) ¶ 8488 (1970).

¹⁴    TGC Contracting Corp., ASBCA 24441, 83-2 BCA ¶ 16764, affd., 736 F.2d 1512 (Fed. Cir. 1984), 2 FPD ¶ 194.

¹⁵    Stallings and McCorvey, Inc., ASBCA No. 26018, 83-2 BCA (CCH) ¶ 16,718 (1983); J.A. Jones Constr. Co. v. City of Dover, 372 A.2d 540 (Del. Super. Ct.) aff’d, 377 A.2d 1(1977).

¹⁶    William F. Klingensmith, Inc., GSBCA No. 5506, 84-1 BCA (CCH) ¶ 17,057 (1984).

¹⁷    Fortec Constructors v. United States, 760 F.2d 1288 (Fed. Cir. 1985); Multi-Roof Systems Co., ASBCA No. 26464, 84-3 BCA (CCH) ¶ 17,529 (1984).

¹⁸    Tectonics, Inc. of Florida, ASBCA No. 27880, 83-2 BCA (CCH) ¶ 16,799 (1983); Paul N. Howard Co., Kirkpatrick Div., IBCA No. 1520-10-81, 85-1 BCA (CCH) ¶ ¶ 17,929 and 17,744 (1984).

¹⁹    Multi-Roof Systems Co., ASBCA No. 26464, 84-3 BCA (CCH) ¶ 17,529 (1984).

²⁰    U.S. Home Corp. v. George W. Kennedy Constr. Co., 610 F. Supp. 759 (N.D. Ill. 1985).

²¹    Hatfield Heating and Air Conditioning, Inc., ASBCA No. 28796, 84-3 BCA (CCH) ¶ 17,660 (1984); Solomon v. Dept. of State Highways & Transp., 131 Mich. App. 479, 345 N.W.2d 717 (1984).

²²    Schweigert, Inc. v. United States, 388 F.2d 971 (Ct. Cl. 1967); Reynolds Constr. Co., ASBCA No. 12015, 68-1 BCA (CCH) ¶ 6756 (1967).

²³    Id.

²⁴    Solomon v. Dept. of State Highways & Transp., 131 Mich. App. 479, 345 N.W.2d 717 (1984).

²⁵    C. J. Longenfelder & Sons, Inc. v. Pennsylvania Dept. of Transp., 44 Pa. Commw. 585 404 A.2d 745 (1970).

²⁶    Robinson Steel, Inc. v. J. D. Absoms, Inc., 582 S.W.2d 558 (Text 1979).

²⁷    Usemco, Inc. v. Marbro Co., 60 Md. App. 351, 483 A.2d 88 (1984); Concrete Systems, Inc. v. Florida Elec. Co. of Orlando, 425 So. 2d 632 (Flat Dist. Ct. App. 1983); Chameleon Eng’g Corp. v. Aerodynamics, Inc., 101 Cal. App. 3d 418, 161 Cal. Rptr. 463 (1980).

²⁸    Pottinger v. Cross, 170 Ga. App. 647, 317 S.E.2d 850 (1984); Beacon Indus., Inc. v. Vandenbunt Concrete, 172 Ga. App. 573, 323 S.E.2d 871 (1984).

²⁹    Staten Island Supply Co. v. Beverly-Glenwood Richmond Corp., 96 A.D.2d 553, 465 N.Y.S.2d 232 (1983).

³⁰    United States ex ref. Roper v. Reisz, 718 F.2d 1004 (11th Cir. 1983).

³¹    Case Prestressing Corp. v. Chicago College of Osteopathic Medicine, 118 III. App. 3d 782, 455 N.E.2d 811 (1983); Able Elec. Co. v. Vacanti & Randazzo Constr. Co., 212 Neb. 619, 324 N.W.2d 667 (1982); Dorel Steel Corp. v. Modular Constr. Inc., 3 Mass. App. 494, 334 N.E.2d 76 (1975).

³²    Tempo, Inc. v. Rapid Elec. Sales & Serv., Inc., 132 Mich. App. 93, 347 N.W.2d 728.

³³    Able Elec. Co. v. Vacanti & Randazzo Constr. Co., 212 Neb. 619, 324 N.W.2d 667 (1982); William F. Klingensmith, Inc., GSBCA No. 5506, 84-1 BCA (CCH) ¶ 17,057 (1984).

³⁴    Drew Brown, Ltd. v. Joseph Rugo, Inc. 436 F.2d 632 (1st Cir. 1971).

³⁵    Southern Steel Co. v. Consolidated Eng’g, 677 S.W.2d 97 (Tex. Ct. App. 1984).

³⁶    Able Elec. Co. v. Vacanti & Randazzo Constr. Co., 212 Neb. 619, 324 N.W.2d 667 (1982); William F. Klingensmith, Inc., GSBCA No. 5506, 84-1 BCA (CCH) ¶ 17,057 (1984).

³⁷    Chicago College of Osteopathic Medicine v. George A. Fuller Co., 719 F.2d 1335 (7th Cir. 1983).

³⁸    Giammeta Assocs., Inc. v. J. J. White, Inc., 573 F.Supp. 112 (E.D. Pa. 1983).

³⁹    Phoenix Contractors, Inc. v. General Motors Corp., 135 Mich. App. 787, 355 N.W.2d 673 (1984).

⁴⁰    Id.

⁴¹    Case Prestressing Corp. v. Chicago College of Osteopathic Medicine, 118 III. App. 3d 782, 455 N.E.2d 811 (1983).

⁴²    Public Health Trust of Dade County v. M.R. Harrison Corp., 454 So. 2d 659 (Fla. Dist. Ct. App. 1984).

⁴³    Castagna & Sons, Inc., GSBCA No. 6906, 84-3 BCA (CCH) ¶ 17,612 (1984).

⁴⁴    Ohbayashi-Gumi, Ltd., IBCA No. 1785-3-84, 84-3 BCA (CCH) ¶ 17,629 (1984).

⁴⁵    Warren Bros. Co. v. North Carolina Dept. of Transp., 64 N.C. App. 598, 307 S.E.2d 836 (1983).

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