The project schedule is one of the most important management tools on any construction project. In addition to planning the physical construction work, the project schedule can be an efficient and effective means to manage resources and calculate and substantiate payment requests. The schedule often becomes the contractor's main instrument for measuring schedule delays, supporting time extension requests and requests for reimbursement of time related costs. After all, time is money and contractors are sensitive to the costs of extending contract performance without just compensation and waiver of delay liability. Every contractor knows delays are inevitable and cost money, but not all contractors know how to best protect themselves against schedule delays and the attendant costs. If schedule delays are not scary enough, the threat of liquidated damages is all the motivation necessary for one to aggressively pursue time extensions to protect the bottom line. The consequences of mismanaging the schedule and project delays can be catastrophic as demonstrated in the recent case from the Civilian Board of Contract Appeals ("CBCA"). This article provides an approach to manage schedule delays and preserve profit margins by emphasizing the benefits of using third party schedule consultants at the outset of a project.
W.G. Yates & Sons Construction Company and Desbuild Incorporated entered into a joint venture agreement ("YDJV") to pursue a contract for a New Consulate Compound ("NCC") pursuant to a solicitation issued by the U.S. Department of State (DOS) Bureau of Overseas Building Operations ("OBO"). OBO manages the design and construction of U.S. facilities around the world in support of foreign missions. The contract required the design and construction of nine buildings for the new U.S. Consulate in Mumbai, India (the "Project"). DOS awarded the Project to YDJV in September 2005 with a period of performance not to exceed twenty-eight months.
Although YDJV was required to achieve Substantial Completion by March 16, 2008, due to a multitude of delays and other impacts, it achieved substantial completion on October 5, 2011--just over forty-three months late. OBO's Contracting Officer ("CO") subsequently assessed liquidated damages for 1,192 days of delay totaling $11,301,352 and assessed another $892,810 for direct cost claims against YDJV. Separately, YDJV submitted a certified claim seeking compensation for delays related to: 1) changes to the visa application process by the Government of India ("GoI"); 2) GoI's delayed issuance of construction permits related to a property tax dispute in New York City which DOS knew would likely cause delays; 3) changes in the labor market which caused shortages of skilled labor in Mumbai; and 4) a stop-work order issued by OBO. In total, YDJV sought $23,802,082 and a time extension for 868 calendar days of compensable delays and another 316 calendar days of excusable delays (i.e. non compensable). YDJV also submitted claims seeking payment of $53,136 for occupancy sensors and $123,612 for utility bills because of the delays. OBO denied the claims and YDJV appealed the decisions. The parties agreed to consolidate the appeals into a three-and-a-half week hearing before the CBCA.
Both parties presented expert testimony regarding schedule delays. The experts were well qualified with experience in development and updating of construction schedules and schedule delay analysis. The contract provided for excusable delays which entitled YDJV to time, but not compensation for any delay determined to be excusable. The contract defined excusable delays as those beyond the control of the contractor and not the fault of the government. The contract also entitled YDJV to compensation of damages for delays caused by the government (compensable delays). The contract also contained a liquidated damages provision which applied to all unexcused delays (i.e. not classified as either excusable, concurrent or compensable). Thus, YDJV was entitled to compensation for any delays attributable to OBO.
Following the hearing and subsequent briefings by the parties, the CBCA determined that YDJV was responsible for 744 days of unexcused delays. Within its ruling, the CBCA granted an 1,184 calendar day time extension, of which only forty days were awarded as compensable delays. The CBCA then offset the 744 unexcused days with the 40 compensable days, holding YDJV responsible for the net 704 unexcused delays. Utilizing the Project's liquidated damages clause, which allows $9,481 for each day of YDJV's unexcused delays, the CBCA assessed YDJV a total of $6,674,624, plus interest.
Weight of Expert Testimony
In making its determination, the CBCA noted its concerns with DOS's scheduling expert's analysis due to his use of an unfamiliar methodology; a modified contemporaneous period methodology. YDJV cycled through multiple schedules during the Project and some of these schedules were determined to be unreliable. YDJV's unreliable schedules prevented DOS's expert from utilizing the more commonly recognized schedule analysis methodologies. YDJV objected to DOS's expert's methodology, arguing that it departed from the Association for the Advancement of Cost Engineering's ("AACE") forensic analysis guidelines per AACE International Recommended Practice No. 29R-03. However, the CBCA found that DOS's scheduling expert's methodology did in fact comply with the RP 29R-03 which is not prescriptive as it expressly states that departure within the professional judgment of the expert is permissible. The CBCA also noted that the DOS expert's analysis utilized as-built progress to measure the critical path delays, which the CBCA determined had more credibility.
In contrast, although CBCA found YDJV's expert's chosen methodology to be unremarkable with respect to RP 29R-03, it did find that YDJV's expert's analysis and opinions were less helpful, in part because he appeared to discount or minimize evidence supported by the record. Within his analysis, YDJV's expert did not accurately represent one of the required local permit activities which YDJV was the responsible for. Failing to accurately represent these activities within the schedule analysis ignored the actual dependences between the necessary project requirements and physical work. The result was a schedule analysis which misrepresented the facts and that failed to account for delays attributable to YDJV's late permit application which prevented the start of construction. This oversight damaged YDJV's expert's credibility and caused the CBCA to be more critical of his analysis.
The CBCA eventually placed greater reliability on DOS's scheduling expert's results and supporting methodology which it found complied with both the industry standard guidelines per AACE RP 29R-03 and used actual as-built progress to measure the critical path delays. Although YDJV's expert's analysis also complied with the RP 29R-03 guidelines, it failed to
Practical Advice for Project Schedules
Schedules are usually created by the prime contractor and submitted as part of the pre-construction effort. To be effective, baseline schedules should be developed early and updated regularly. Updates must be based on sound scheduling practices, accurate and supportable project events and documentation. If developed and managed properly, schedules are an effective management tool for all project participants. Just as important, properly developed and managed schedules are the foundation for any subsequent schedule delay analysis. As the CBCA discussed in Yates-Desbuild Joint Venture, credibility and schedule integrity are cornerstones for any delay analysis. Any court or board of independent fact finders must have faith in the analysis presented.
Credibility begins with the initial project baseline schedule and continues with schedule updates properly prepared at regular, preferably monthly, intervals through the end of the project. Updating the schedule is important because it provides the parties with a status and a measure of performance at a particular moment in time. If prepared properly, accurately and regularly, schedule updates can provide timely constructive notice to the project participants as to whether the project is ahead or behind schedule, and why. Armed with this information, the parties can responsibly and effectively manage the delays and the remaining work. Plans can be adjusted to either achieve the original completion date through acceleration (for owned responsible delays) or recovery (for contractor responsible delays) or extend the required completion date.
As an enhancement to effective project management, schedules can be cost and/or resource loaded. Cost loading allocates a dollar value to each schedule activity. Resource loading allocates project resources, such as manpower, to each schedule activity. A cost loaded schedule provides the owner with accurate financial planning information and forecasting. Similarly, cost loading a schedule provides a contractor with the planned vs. actual cash flow record and projections for future billings and cost to complete analyses. These are powerful metrics of performance and necessary for cash flow management.
The prime contractor typically utilizes internal managers to create and manage the schedule. Most often the prime contractor's internal staff has several areas of responsibility, not just scheduling. In addition, internal schedulers often do not have the experience and level of expertise needed to create and maintain a schedule which will support the type of schedule analysis needed to properly request a time extension or withstand the level of scrutiny experienced during litigation or alternate forms of dispute resolution (i.e. ADR).
The use of third-party expert scheduling consultants from the beginning of the project to create and manage the schedule process can bring a host of cost effective benefits. As most schedule experts often get involved at the end of an unsuccessful project to forensically analyze the entire project to determine the delays and responsibility, they gain a deeper level of understanding as to issues which arise from poor scheduling practices which cannot be gained otherwise. This expertise, and appreciation for what can go wrong, can be incorporated into the schedule baseline and update development process. This allows for proactive and responsible schedule management and avoids the need for a costly and time consuming forensic schedule analysis. Involving a dedicated third-party schedule expert from the beginning also helps to avoid having a less than optimum schedule analysis issue, as was the case for both the owner's and contractor's schedule experts in the recent CBCA decision, Yates-Desbuild Joint Venture.
Utilizing outside scheduling experts increases the credibility of the project schedule because third-party schedulers are independent of the prime contractor's staff. As independent professionals, third-party scheduling experts can be more objective compared to the prime contractor's staff because there is less pressure and temptation to manipulate the schedule data. Maintaining the integrity of the schedule is critical to the lay the foundation for subsequent claims for time and time related costs. Similarly, third-party scheduling experts can provide the contractor's staff with the understanding, focus, discipline and scheduling best practices necessary to ensure accurate schedule development and updating. The result will be reliable schedule projections, delay management and support for dispute resolution, if necessary.
Utilizing third party scheduling experts at the outset of a project helps to:
- Ensure development of reliable and supportable schedules which then allows for enhanced and more effective project management;
- Provide a sound basis for any necessary schedule delay analysis which allows for responsible delay mitigation and/or dispute resolution, protecting contractor margins and viability;
- Mitigate costly post-project forensic analysis because the experts are involved from the outset;
- Maintain the integrity of the schedule. Steps must be taken to ensure the schedule is updated accurately, properly and regularly. Ignoring schedule maintenance will lead to costly forensic analysis with unpredictable outcomes.
In today's fast paced construction market with fierce competition and tight margins, contractors and owners alike must give schedules more emphasis to protect themselves against delays and the costs associated with them.