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Monday
Jan232012

Construction Schedules & Delay Claims - General Contractor Claims

This is the second in a series of articles on Construction Schedules & Delay Claims.  In this article, we will address delay claims against owners.

As we mentioned in the first installment of this series, delay claims are difficult (and expensive) to prosecute.  Despite the difficulty and expense, the general contractor (and, of course, subcontractors) should follow basic procedures and practices during the project in order to protect and preserve these claims.

The first step at the outset of any construction project is to read the contract.  The Contract will address (1) how the general contractor is to submit the delay claim; (2) what information needs to be provided; (3) when it needs to be submitted; and (4) what the general contractor’s remedies are.  Although provisions impacting delay claims can be found in almost any section of the general contract, liquidated damages and delay claims can generally be found in (1) the Agreement (AIA A101, A133, etc.); and (2) the General Conditions (AIA A201), particularly Articles 4 (Architect), 7 (Changes in the Work), 8 (Time), and 15 (Claims and Disputes).

The general contractor should follow the notice provisions, both in terms of when the notice must be submitted and what information is required to be submitted.  The general contractor should also make sure that the subcontractors are aware of the notice requirements (both the timing and substance of the notice).

Some notice provisions are extremely detailed.  If there is ever a doubt about the impact of an event or an owner change, the general contractor should simply reserve the right to request additional time once the effect upon the schedule is fully understood.  At the time of a delay event, it is impossible to know the exact amount of delay that the general contractor will suffer simply because it is impossible to see into the future.  As long as it complies with the contract, the general contractor should reserve rights to assert delays and, when the general contractor does know the impact, notify the owner.  If the general contractor is required by contract to state the number of days at the time of the initial notice, it is important to make sure that you have requested enough time and reserve rights to more accurately address that particular claim.

General contractors should be careful when executing change orders.  If the general contractor signs a change order that does not provide time or does not reserve time, then the general contractor may be bound to that document and may not get additional time as a result of that change.  When in doubt, the general contractor should write in a reservation of rights to submit for a schedule extension.

While each individual change order may not, by itself, warrant an extension of time, the cumulative effect of multiple change orders may provide a basis for a time extension.  While these type of claims are difficult to prove, if the general contractor encounters a project where there are an inordinate amount of change orders, it is the proper course to reserve the right to request a time extension with each change order.

Aside from contact compliance, there are a few practical issues that assist the fair and reasonable discussion and processing of delay claims:

 

  • It can be uncomfortable to submit and discuss delay claims because, if valid, these issues will cost the owner a lot of time and money.  However, it is important to realize that delays cost the contractor too.  Every day that the contractor is working on that project costs thousands of dollars.  As difficult as it may be to discuss delays during the project with the owner, it is far more difficult to address them at the end of the project, when it comes as a surprise.  The better practice is to address these issues early.                    
  • Provide Information.  Tell the owner and architect what information you need, when you need it, and the consequences of not receiving that information when you need it.                    
  • Give Forewarning.  Before sending official notice, it is best to be courteous and tell the owner/architect what you need and when you need it.  Pick up the phone and tell the owner/architect that you need response to RFI No. __ or direction to proceed with Change Order Proposal No. __ within the next two weeks.  Give the owner/architect sufficient verbal notice to get you the information.                    
  • Give written notice, but call again.  If you don’t get a response from the first call, then call again and inform the owner/architect that you will be sending a notice letter within the next day or so, that you are just following the terms of the contract, and that you hope that the information/direction will be provided.
  • Provide solutions.  Be proactive in providing “pre-notice,” written notice, and solutions.  You will gain respect and credibility if you are seen as being part of the solution, rather than part of the problem.

For additional information, please contact Jack DiNicola at DSU.

Friday
Dec162011

Construction Schedules & Delay Claims -- Schedule Uses, Schedule Importance & Schedule Updates

This is the first in a series of articles on Construction Schedules and Delay Claims.  This article addresses (1) schedule uses; (2) schedule importance; and (3) schedule updates.

I.  Schedule Uses.

The Schedule has several uses.  The Baseline Schedule explains how the contractor is going to build the project.  The Schedule also aids in subcontractor management.  It is an important tool for both general contractors and subcontractors for coordination of activities.  Schedule Updates allows the parties to graphically determine progress when compared to the Baseline Schedule.  A proper Schedule also depicts changes in scope and the effect on the Schedule.  Schedules are obviously used for claim prosecution and claim defense.

II.  Why is the Schedule Important.

All construction contracts should have two basic elements in the scope of work.  The first element of the scope of work is the labor and materials to construct the building.  The second element of the scope of work is to construct the building within a stated amount of time.  A delay in the schedule is a breach of the contract -- for the Owner, for the contractor, for the subcontractors.

Delay claims are difficult to prove because there are so many variables, so many different entities involved, a lot of educated guesses, and great expense (lawyers and experts).  However, these claims serve practical purposes, aside from litigation and arbitration of these claims:         

  • Negotiation at project close-out with owner.  Often, the final payment is the most difficult payment to receive.  At that time, general contractors may receive numerous backcharges from the owner against the final contract balance.  Even if some of those claims are legitimate, a well documented and noticed delay claim can be used to negotiate a final close-out that is acceptable, even if the general contractor does not receive delay damages.
  • Negotiation at project close-out with subcontractors.  Some subcontractors routinely submit delay or inefficiency claims, using so-called industry data to support the claim.  Using the subcontract and the schedule during the project to notice the subcontractor of its schedule delays will assist in a timely project close-out.  Additionally, when faced with a troubled project from a schedule standpoint, the contractor must, during the project, be able to document specific delaying events and impacts for each subcontractor.

III.  Schedule Updates.

Periodic Schedule Updates serve several uses:

  • They keep all parties (owner, contractor, subcontractor) up to date on the progress and what needs to occur to remain on schedule (or to catch up on the schedule)
  • They serve as a control for the contractor.  The Schedule Update shows the contractor where it is on the schedule, where it can pick up time, where and who is falling behind schedule. 
  • Schedule Updates can also serve as a cost control mechanism.  If the project is falling behind schedule and that is depicted on the schedule updates, the contractor knows that it will incur additional expense either (1) through extended general conditions; or (2) acceleration payments to subcontractors.  Often, without proper updating, the contractor will fall behind schedule, start paying subcontractors for overtime to accelerate, but not know (1) who is responsible; or (2) how much it will cost.  More often than not, it is too late when the costs are realized.                    

Schedule Updates generally show one of three things:  (1) on schedule; (2) behind schedule; or (3) ahead of schedule.  As a result, distribution of schedule updates can be a sensitive issue.  As an initial matter, the general contractor must review the contract requirements.  Many contracts require that periodic schedule updates be published to the owner.  In these instances, the schedule updates must be drafted with care.  It is never wise to ignore bad facts or bad news regarding the schedule until the end of the project.  However, it is also not good practice to overload the owner with information that consists mostly of projections.  A reasonable way to approach schedule updates that are distributed to the owner is to provide summary schedule updates (if allowed by the contract).  If the summary shows a delay, then the general contractor should be prepared to discuss (1) the reasons for the delay; and (2) possible solutions to mitigate the delay.

For additional information, please contact Jack DiNicola at DSU.

 

Wednesday
Nov162011

DiNicola Addresses BC Law Students on Construction Law Careers

On November 14, 2011, Jack DiNicola, partner at DSU, and Jim Tierney of the Boston Redevelopment Authority presented a lunch discussion concerning legal careers in construction law and development law to students at Boston College Law School. 

Mr. Tierney discussed his career path and a typical day working for the BRA in evaluating construction and development projects.  Mr. DiNicola discussed his career path and a typical day working on behalf of general contractors and other participants in the construction industry.

Wednesday
Oct052011

Practical Tips for Local Permitting

Andrew Upton authored an article in the Fall 2011 Boston Bar Journal on practical tips for local permitting.  Here is the link to the article:    http://www.bostonbar.org/pub/bbj/bbj_online/bbj1112/fall2011/PracticeTips1.pdf.

Thursday
Sep292011

Non-Compete Agreement Cannot Be Extended By Employer

By Damon M. Seligson, Esq.

In the case of EMC Corporation v. Arturi, et al., the United States Court of Appeals for the First Circuit ruled that an employer could not equitably extend a non-competition agreement with a former employee beyond the agreed-upon duration of the agreement, and instead is left with a damages remedy only.  

            In the underlying case filed in the United States District Court for the District of Massachusetts on the basis of diversity, the plaintiff, EMC Corp., sought, among other things, a preliminary injunction against its former employee, Christopher Blotto, forbidding violation of his employment agreement.  Specifically, EMC sought to enforce the agreement to enjoin Blotto from competing with EMC; from soliciting EMC’s customers and remaining employees; and from possessing and using confidential information gained while employed.  District Court Judge, Frank D. Saylor, IV granted a preliminary injunction as to the confidential information, but not as to competition or solicitation, declining on the ground that the contractual restrictions on these activities limited Blotto’s efforts for one year only, a period that had passed before any injunction could be issued. 

            EMC Corp. appealed to the U.S. Court of Appeals for the First Circuit.  Associate Justice David H. Souter (Ret.) of the Supreme Court of the United States, sitting by designation, wrote the decision.  

            In short, the First Circuit Court of Appeals agreed with Judge Saylor’s decision below.  Judge Souter noted that because the case was venued in federal court of the basis of diversity of jurisdiction, the law of Massachusetts governs.  In All Stainless, Inc. v. Colby, 364 Mass. 773, 308 N.E.2d 481, 485 (1974), the Supreme Judicial Court of Massachusetts stated that, after a non-compete expired, the only relief available to an employer for an employee’s contract breaches is monetary damages.  Accordingly, the First Circuit Court of Appeals denied EMC Corp.’s appeal. 

            Both Justices Saylor and Souter, however, expressly noted that an employer such as EMC Corp., which typically stands in a superior bargaining position relative to an employee, could have “contracted” around the issue.  In Arturi, however, EMC Corp. did not.  Thus, the request to extend the restriction period beyond the agreed-upon twelve months was denied.  

Going forward, the impact of Arturi will likely be that employers will contract around this issue by including a tolling of the term of restriction during litigation, or for a period of restriction to commence upon preliminary finding of breach.     

            A copy of the opinion can be accessed at: http://www.ca1.uscourts.gov/pdf.opinions/11-1001P-01A.pdf