Types of Disruption

This post discusses noncompensable and compensable disruption of construction projects.

This is the second post in a three-part series on disruption. The first post addresses the definition of disruption in construction, three general principles associated with disruption, and how disruption is different from delay, and the third post discusses the effects of disruption.

A contractor may experience various types of disruption, including disruptions resulting from changes, shifting the location of performance, defective and deficient plans and specifications, incorrect contract drawings, differing site conditions, unusually severe weather, strikes, unavailability or late delivery of equipment and materials, defective work, equipment breakdowns, failure to schedule and coordinate work, and the owner’s or design professional’s failure to respond to requests for information in a timely manner or to coordinate other contractors performing simultaneously on the project. These disruptions may be noncompensable or compensable, depending on whether the contractor or the owner bears contractual responsibility for the increased costs of the disruption.

Noncompensable Disruptions
Disruption to a contractor’s planned performance does not automatically entitle the contractor to compensation. An example of a noncompensable type of disruption is when the contractor should have anticipated the disruptive event, such as when contract documents indicate the presence of certain adverse soil conditions, such as a high water table that will require pumping of the site to enable movement of earthmoving equipment. Another example is when contract documents state that the contractor will have to work in conjunction with other contractors at the project site. These events would not support a claim for disruption because the contractor should have anticipated them by reading the contract. The contractor was unreasonable in planning its performance and costs if it did not consider these conditions.

Other noncompensable disruptions are those caused by the contractor’s own actions or performance, such as improper scheduling, inefficient material expediting, defective work, inadequate equipment, or the failure of a subcontractor or supplier to perform. The contractor cannot complain when its disrupted performance is based on unreasonable assumptions or its own poor planning or performance.

Another noncompensable disruption is one that the contract specifically excludes. These contract provisions are a method of risk allocation by which each party attempts to shift to the other the risk of disruptions that are beyond the control of either party. Typically, the owner and the contractor share the risk of such events through contractual language. The contract may grant the contractor a time extension equivalent to the time impact of the disruption but place the burden of the costs of disruption on the contractor. Examples of this type of noncompensable disruption are those caused by acts of God, unusually severe weather, strikes, and an inability to obtain materials. Contractual language as well as general principles may require that such disruptions, even though noncompensable, be unforeseeable and beyond the contractor’s, subcontractor’s, and supplier’s fault or control for a time extension to be granted.

Despite a disruption being noncompensable, it may entitle the contractor to a time extension when the disruption has lengthened the time necessary to perform a particular portion of the contract, foregoing the owner’s entitlement to liquidated damages.

Compensable Disruptions
Contractors proceeding under a written contract have two basic means of recovery when asserting a claim for increased costs due to disruptions:

1. Recovery under a specific contract provision.
2. Recovery under general principles of contract law.

Specific contractual language often provides a contractor with a remedy when disruptions adversely affect its performance. The FIDIC General Conditions provide in Clause 6.3, Disruption of Progress, the following:

The Contractor shall give notice to the Engineer, with a copy to the Employer, whenever planning or execution of the Works is likely to be delayed or disrupted unless any further drawings or instruction is issued by the Engineer within a reasonable time. The notice shall include details of why and by when it is required and of any delay or disruption likely to be suffered if it is late.

Although the changes clause is typically used when the owner orders additional work, it can be applied to disruption situations that have increased the contractor’s cost of performance as a result of loss of productivity, even though the disruption requires no extra work. Such losses of productivity are not always obvious to an owner because the contractor is usually on the site and appears to be progressing with the work. However, the contractor may absorb the adverse effects of a delay in numerous ways, including having to relocate labor forces, reschedule equipment and/or material allocations, and perform in harsher weather conditions due to an extended job period.

Other compensable disruptions that the changes clause or similar contractual language can adequately address include changes to the drawings or specifications, differing site conditions, and actual or constructive suspensions of work. Although these clauses may provide for compensation, there are frequently administrative preconditions such as notice within a specified period or submission of the claim to the owner’s representative before seeking arbitration or judicial review.

When the owner refuses to compensate the contractor for such disruptions in accordance with a changes clause or similar contractual stipulation, the contractor may be able to recover its increased costs by asserting that the owner breached either an express or implied obligation of the contract upon which the contractor’s performance depended. An example of an express obligation would be a specific clause stating that it is the owner’s duty to make the site available to the contractor at a certain date. Similarly, a clause that requires a contractor to perform on a specific date may act as a warranty that the jobsite will be available on that date. If the owner subsequently fails to provide timely site access, the contractor may have a breach of contract action against the owner for failing to make the site available by the contractually required date.

In addition to construing parties’ rights under the express provisions of a contract, courts often supplement these express rights with implied rights and obligations, such as the duty not to interfere with the contractual performance of another.

Many cases describe this implied duty and set forth the acts that constitute interference with another’s contract performance, entitling the injured contractor to damages. The following acts have been held to constitute interference with a contractor’s work:

• An owner’s failure to make the work site available when this was within its control;
• The owner’s failure to furnish materials, labor, or information in a timely manner;
• The owner’s failure to remove conditions that restrict but do not deny access to the jobsite.

Another implied duty that may form the basis for a disruption claim is the duty to schedule and coordinate work. For example, if an owner favors one contractor over another or permits one contractor to work in an area where another contractor is supposed to be working, it may face a claim for additional compensation as a result of the disruption caused by the owner’s failure to coordinate the work. Contractually, however, the duty to coordinate work among subcontractors may be shifted to the contractor.

It is extremely important that a contractor whose performance has been disrupted keep accurate records of its increased costs and/or time of performance. It is easy for a contractor to overlook the more obvious disruption costs of a differing site condition or change order because the focus is on additional quantities or duration of work, rather than the impact of the disruption to the overall costs of performance.

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