Put Your House In Order Part III – Prepare for Project Delays
Delays in completion of your construction project are an unfortunate, yet inevitable, reality in the industry. This has especially been the case over the course of the pandemic where we have seen delays in the delivery of materials, COVID-19 and various restrictions affecting personnel, and delays resulting from the actions (or lack of action) of contractors, subcontractors, and suppliers. Whether you are a developer, owner, or trade, it is important that you Put Your House in Order early in the process to avoid the time and expense fighting about delays that will affect you later down the road.
Proper attention should be paid to the terms of your contracts, in particular, as they relate to delay events, what may or may not be an excusable delay, and what remedies are available to the parties if a delay occurs. Further, it is important that proper planning is undertaken up front as it relates to scheduling, delivery of materials, and the execution of the work. Detailed records should be retained in this regard, especially if delays arise or are foreseeable. If a delay does occur, proper notice must be given as required under your contract.
Factors to Establish Delay Claim
Earlier this year, the Ontario Superior Court in Schindler Elevator Corporation v Walsh Construction Company of Canada, 2021 ONSC 283 provided guidance on how construction delay claims, in particular concurrent delays, should be analyzed. To recover damages for a delay claim, the following must be established:
- The cause of the delay must be isolated and defined;
- The delay must be analyzed to determine whether it is excusable or the responsibility of the contractor;
- If the delay is the contractor's responsibility, the contractor must bear the cost. If it is excusable, the extent of the delay must be determined;
- The contractor must prove that actual or constructive notice of the delay was given if required by the contract;
- It must be established whether the delay affected items on the critical path or whether it merely reduced or eliminated the float;
- The contract must be reviewed to assess whether it provides that the contractor is entitled to a remedy of extension of time only or time and compensation; and
- The quantum of compensation must be determined.
Carefully Analyze the Contract
In assessing delay for a contract having a fixed completion date, begin by looking at the contract term containing the completion date and assessing any allowable extensions to determine whether the work was completed on time. Whether or not a delay is excusable will, in the first instance, depend on the express wording of the contract and the intention of the parties.
If a delay is excusable, a claimant is entitled to a time extension, and may be entitled to compensation. Delays that are beyond a contractor’s control are generally viewed as excusable delays. Excusable delay examples outlined in Schindler include weather, strikes, floods, fires, earthquakes and other similar natural disasters, acts of municipal and government authorities, acts of God or force majeure, delays by subcontractors or suppliers arising from unforeseen events beyond their control and without fault or negligence, and unanticipated soil conditions beyond the reasonable contemplation of the parties. It is important to keep in mind that these examples are generally viewed as excusable delay events, although it is not necessarily the case in all contracts.
Non-excusable delays, on the other hand, are delays that do not result in any entitlement to time extension or compensation, and may result in liability exposure to other parties for the cost consequences resulting from the delay. Non-excusable delays can include those resulting from parties failing to perform their own obligations. Careful attention must be paid to the express wording of the contract, however, in determining whether or not an event is excusable, and therefore, whether or not the resulting costs for the delay are compensable.
Notice of Delay
It is important that proper notice be provided to the other party, as required by the contract and as soon as the delay occurs or becomes apparent. Failure to provide notice required by the contract can be fatal to your claim. This notice should be as clear as possible that there is, or is anticipated to be, a delay in project completion (or completion of a milestone).
Impact of Delay
It is also important and is often difficult to determine whether or not the longest chain of logically connected project activities, if delayed, would delay the end date of the project (i.e., the “critical path”) or if an activity in the project was simply delayed without affecting the critical path – for example, because of early completion of another activity (i.e., the “float”). This analysis typically requires the opinion of an expert and is often the determining factor whether or not a party is entitled to relief for a delay claim. This analysis requires breaking the overall delay into components and apportioning time, responsibility, and costs. The reality in the industry which was recognized by the Court in Schindler is there are several “concurrent” and overlapping events that result in project delays. Such an approach is more likely to lead to a fair and just result is assessing responsibility such as where the evidence supports a finding of multiple parties delaying the project.
These considerations are important when reviewing, entering into, or negotiating your contracts. If care can be taken up front to address delay-related issues by clearly defining terms in the contract and by properly scheduling/executing construction activities, this will Put Your House in Order by mitigating potential legal costs and the time you will be obligated to invest to establish your position in the event of a dispute.
For more information on this article or any other construction law matter, please feel free to contact any member of our Construction Law group.