April 22, 2019 Articles

Staying in Control of Delay Claims While Mitigating Delays

Important points to remember when implementing mitigation measures and considerations for preserving claims and collecting the data needed to support claims

by John Kimon Yiasemides--Ankura

Ankura is a corporate sponsor of the Section of Litigation. Neither the ABA nor ABA entities endorse non-ABA products or services. This article should not be construed as an endorsement.

Construction contractors have the obligation under U.S. common law to attempt to mitigate owner-caused delay. Yet, when mitigation is implemented by contractors, they often find that during their mitigation efforts, they have lost track of the additional delays, impacts, and cost to the project in an effort to complete the project on schedule. This article explores important points to remember when implementing mitigation measures and offers considerations regarding preserving claims and collecting the data needed to support claims. It also provides markers to preserve and identify claims when mitigation efforts are unsuccessful or turn into acceleration efforts.

The Scenario—How Did We Get Here?

Most often, changes to a construction project, and the impacts due to changes, do not come with a predetermined award or even a recognition of delay. Project delays from changes are often dynamic events, developing over time, and may influence a construction project in many ways. Even when the order regarding a change is a clear, written description providing direction concerning the changes, the effect and implementation of that change can vary. The range could be from construction progress continuing without delay to a complete delay and disruption of all the critical project activities. Further, perhaps the initial change was not a large impact, but its progeny cause impact to construction progress.

Complicating the impact of changes to the construction process is the way in which the change was delivered, as the owner may not always clearly communicate the extent of its request. The owner may ask the contractor to “See what you can do to lessen the impact” of a particular change. But knowing what that direction constitutes can be tricky.

The seemingly innocent request from the project owner noted above could be a subtle gesture, but it could have large implications depending on the contractor’s response to such a request. While the request could be simply spoken, the contractor must consider the implication of acting on those words when not given by the owner in writing. The owner may be simply requesting the contractor to explore the possible means of mitigating the changes and potential delay impacts, or the owner may be hinting at a more significant direction, such as a request for acceleration. Thus, project changes and delaying events in their dynamic, and often unclear, nature present difficulty in implementation of mitigation to delays.

Common-Law Duty to Mitigate

U.S. common-law doctrine with respect to mitigation of delays has its roots in fundamental contract law principles. The idea that the contractor must make reasonable efforts not to unduly increase the damages of a project owner has been around for decades. Barry B. Bramble & Michael T. Callahan, Construction Delay Claims § 12.20 (Wolters Kluwer 4th ed. 2011). However, this doctrine has its limits, as the contractor does not have to actually be successful in its mitigation efforts, and is a successful defense only when possible mitigation was the only reasonable action for the contractor to take. Id. (citing Holland v. Green Mountain Swim Club, Inc., 470 P.2d 61 (Colo. 1970), and others).

Some costs might be expended while trying to mitigate from an alternative, more extensive cost or delay, but the contractor is still entitled to receive compensation for that additional cost. Id. (citing Skyline Steel Corp. v. A.J. Dupuis Co., 648 F. Supp. 360 (E.D. Mich. 1986)). For that reason, this concept emphasizes the importance of being able to manage the process of implementing mitigation into the contractor’s plans.

How to navigate these dynamic and difficult circumstances described above and service a project owner with reasonable mitigation that it is due, while still managing delay claims that may be put forth now or at a later date, can all be difficult. Navigating these circumstances is further explored in the section below, along with guidelines as to how to manage the process.

Take the Big Steps Early

Notice your notice provisions. “Read the contract”—these words are important when the first signs of a delay arise, should mitigation efforts begin to be employed, or should something beyond mitigation begin to materialize. There are several ways an event, series of events, action, or inaction can cause a change to the timing and cost of the project. While a contractor should act to provide mitigation in these circumstances, it should also take time to provide notice to the project owner of potential impacts to the project.

Thus:

  1. Review the notice provisions,
  2. Provide a clear communication to the owner regarding the change and actions taken, and
  3. Provide identification and notification to the owner of the unmitigated delay and cost impact amounts.

Notice provisions come in all shapes and sizes and are generated for a variety of causes. In private contracts, they can be as vague and limited to simply providing a written notice within a specific period when the contractor believes an owner-caused change event has occurred that may cause delay. In such cases, the contractor may have the leeway to provide less documentation and support at the time of giving notice. Yet, even with a simple provision such as this, the contractor must be wary. Although it sounds simple to comply with such a provision, failure to do so could render a claim for additional time or cost invalid depending on the state law that the contract follows. Some states strictly construe notice provisions and will allow a claim to fail just due to improper or late notice.

Other contracts, particularly with the federal government, can have significant and onerous provisions that are strongly enforced and may be difficult to navigate. In such instances, more significant documentation, complete with particularities regarding the delay and its outcome, may be required in order to provide effective notice. Working under the U.S. Federal Acquisition Regulations (FAR) can also mean getting the timing right for the right type of issue. For example, the changes clause (FAR § 52.243-4) requires 30 days of notice from receipt of a written change order; whereas when notifying the government of a differing site conditions claim (FAR § 52.236-2), the contractor only needs to provide notice “promptly” from the time such conditions are identified.

Deciding how to provide such notice documentation can be difficult and should be reviewed with legal counsel, but the politics of the jobsite may also be a consideration for a contractor. The contractor may not want to sour a good working relationship with the project owner. But regardless of a cooperative environment, the savvy contractor will find a way to provide notice without drawing too much notice upon itself.

When providing notice of a change, statement such as the following:

We [the contractor] believe that the impacts to the schedule associated with event X have caused additional time and efforts to be undertaken. These efforts will add additional time to activities and/or add activities to the project schedules and have cost implications. We are exploring options to attempt to mitigate the impacts and will update you if successful, but consider this work a change to the contract.

Providing these statements in a generic tone, and using similar language upon each encounter, may accomplish the notice required while not spoiling relationships. (Any such notice language should be reviewed by legal counsel, together with the contract language, to be certain it will meet requirements of the contract and of the subject jurisdiction.) Not changing the notice’s fundamental language helps to ensure that a required element is not missed.

It is important to follow up. After notice of a change is given and once the documentation and scheduling management suggestions below are implemented, the contractor should be aware of when the change, and attempts to mitigate it, have been unsuccessful and the project has experienced critical delay from which it cannot recover. At this point, notice to the owner is very important and should be provided if it wants to recover for resultant costs and schedule impacts.

Documentation management. Once notice of a potential delay event has occurred, the contractor should continue to track the effects and report if it finds the delays have further pushed the project’s scheduled end date. The scheduling aspects are described more fully in the section below, while important types of documentation are explained here.

Before recording and assembling documentation about the impacts from the potential delaying event or events, first reference the notice document, which should include assumptions on which the notice is based. Preferably, the notice document will assign a tracking number by which other documents can reference the issue and thereby more easily track its effects. The initial delay event may be one that the contractor believes it can mitigate but, after implementing the change, realizes that there will be delays after all, perhaps as assumptions change over time. For example, was there a delay that required shop drawings to be reproduced and procurement to start again for construction materials? If so, then the review of the shop drawings and time spent re-procuring materials are important to track as procurement times can change. Issue folders can be kept with the relevant documents relating to the issue at hand to be sure if, after initial investigation, the change grows or is unable to be mitigated.

Some important documents to track and flag or compile in an issue folder, and potential reasons to flag them, are as follows:

Submittal/shop drawing logs. Recording modified drawing or new drawing submissions required due to a change is important as the additional time may become an impact. Recording which submittals were resubmittals due to a change should be referenced in the submittal. Scope creep during the submittal process could also increase the time and cost of the change.

Procurement logs/delivery tickets. Often the exact time of procurement cannot be determined until well after the notice is given. If the procurement becomes longer than initially reported, the delay may increase or it may no longer be possible to mitigate it (or both).

Daily logs. Recording work performed that constitutes only a part of a larger schedule activity is important to explain extended durations. Also, work for which a subcontractor will submit its costs on a time-and-material basis should be separately tracked or flagged in daily logs.

Inspection and test reports. As with the daily logs above, the contractor may realize later that specific work for a change needs to be broken out from its schedule with more specificity. Recording accurately when the change work was performed (apart from base-contract work) is helpful in showing its impact.

Labor records/reports. Particularly if work is done on a time-and-material basis, knowing which labor was added can be important when the potential mitigation fails and the contractor or subcontractor finds itself with labor cost overruns or schedule delay and no reasonable way to particularize the overrun or delay.

Correspondence. Again, being mindful of scope creep, additional correspondence, particularly to or from the owner, should be flagged to the issue.

Meeting minutes. It is important when producing the minutes to reference issues that are ongoing in nature. An example would be the following: “Contractor is still awaiting NTP on Change Issue #123 from owner. Shop drawings and procurement for materials cannot progress without NTP.”

Schedule. The project schedule can be the most important item, the management of which is discussed below.

Other costs unrelated to time can arise as well when attempting to mitigate changes and delays. These costs could include items such as crew increases due to stacking of trades, additional equipment, and higher cost of materials due to expedited delivery needs. The notice and documentation points above are applicable to the cost issues as well.

Schedule Management

Read the contract, part 2. Along with the notice provisions, the contract provisions regarding the proper submission of a delay claim should be reviewed when a potential delay event has been identified. The provisions may be found in the general conditions of the contract, special provisions, or the schedule specification section of the contract, or in all of these. Careful review of them should be taken, and from my experience, you may find they may conflict or raise questions as to what is the proper procedure. Buy-in from the project owner as to the method and documentation used is preferable but unfortunately might not be easily resolved.

Acceleration differentiated from mitigation. It is important to differentiate between mitigation and acceleration. Simply put, mitigation efforts do not require the contractor to undertake additional costs to help lessen an impact of a change or delay event, whereas acceleration efforts do require the contractor to expend additional costs in an attempt to reduce delay due to a change or delay event. It is recognized that mitigation can cause some minimal additional cost. However, documentation and proving such costs may be difficult to impossible.

Acceleration costs occur when the contractor attempts to achieve more than planned in the same or less amount of time using additional resources. Acceleration costs generally arise from additional labor, additional equipment, extended labor hours or days, or a combination of these. Acceleration arises in three basic situations:

  • Acceleration can arise because of a directed order from the project owner. This first type is easy to identify, and cost documentation described above should begin immediately.
  • Acceleration can arise “constructively” as the owner places the contractor in a position in which it has no choice but to accelerate. This most typically arises when the owner has not allowed the end date of a project to be extended but has ordered additional work that delays the project schedule’s completion, thereby forcing the contractor to accelerate its efforts to complete on time. As soon as the contractor recognizes that this situation has occurred, notice should be provided to avoid confusion and help preserve claims.
  • Note that the owner’s failure to respond to a time extension request within a reasonable time has also been construed as creating a situation that forces the contractor to accelerate, thereby creating a constructive acceleration by the owner. (See Smith Curie & Hancock, Federal Government Construction Contracts 357–58, (John Wiley & Sons 2d ed. 2010) (discussing Fermont Division, Dynamic Corp. of America, ASBCA No 15006, 75-1 BCA)). The owner should also have manifested some expression that acceleration would be necessary as the end date will not be extended, or the contractor must give notice of the constructive acceleration. (See Jon M. Wickwire, Thomas J. Driscoll, Stephen B. Hurlbut & Mark J. Groff, Construction Scheduling: Preparation, Liability, and Claims §7.10 [B] (Aspen 3d ed. 2010)).
  • Or acceleration can be voluntarily undertaken by the contractor. This should be undertaken only when the contractor is the cause of slow productivity or delay events. In order for the contractor’s acceleration not to be miscategorized as voluntary, the contractor should provide clear communication about what it believes are the causes of the delay requiring acceleration efforts, describing the reason for acceleration.

Placeholders, fragnets, TIAs, and schedule notes. Recording the effects of change in the schedule can be vitally important to the successful submission of a claim, particularly if mitigation efforts fail. In certain cases, courts and boards have found a “rebuttable presumption of correctness attached to the CPM schedule upon which the parties have previously mutually agreed” and may allow parties to “‘live or die by’ the CPM” when attempting to measure delay.” (See Smith Curie & Hancock, Federal Government Construction Contracts 353–54 (John Wiley & Sons 2d ed. 2010) (discussing Santa Fe, Inc., VABCA No. 2168, 87-3 BCA, and PJ Dick, Inc., VABCA Nos. 5597, 5836, 01-2 BCA).) Therefore, when mitigation is under way, if the contractor can record and make notes of the potential impact or delay impact events within its schedule, it will be much better served should the delays give rise to a claim. Recording the impacts can be done using

  • placeholder fragnets,
  • after-the-fact fragnets to preserve prolonged activities explanation, and
  • notes in the project schedule and attached narratives.

A fragmentary network of activities connected with logic ties but not yet a part of an overall schedule, known as a “fragnet,” can be used to represent work that can be developed separately and added into the schedule for change work. It is best if inserted after agreement on duration and logic is reached between the subcontractor or subcontractors and the contractor. (Some scheduling specifications or contract terms outline how to insert additional logic and activities, but many do not describe the process in detail.) Placeholder fragnets can be used when the owner and contractor have not agreed to the full scope or the impact to the schedule, or both, but a project schedule is due to be produced. By using a placeholder fragnet, at least the initial representation of the delay issue is recorded and the effects can begin to be measured. Fragnets can be sent separately for discussion with the owner, but they should be incorporated as soon as possible into the project schedule so that the impact can be communicated and ways to mitigate the impacts can begin to be determined. Without them, the schedule may begin to extend without proper explanation or tracking as to the cause, and other affected trades will have less time to react.

The time impact analysis (TIA) is not a term unfamiliar to the construction industry. The U.S. Corps of Engineers included a requirement in its standard contract terms to use the TIA when submitting a claim for delay several decades ago, and the TIA was in wide use at that time throughout the construction industry. (The Department of the Army first used the TIA in its Modification Impact Evaluation Guide in 1979.)

Exact definitions slightly vary. One such definition comes from the AACE International in its recent Recommended Practice No. 52R-06, which describes a TIA as “a ‘forward-looking’, prospective schedule analysis technique that adds a modeled delay to an accepted contract schedule to determine the possible impact of that delay to project completion.” The definition I have developed is as follows:

The TIA takes the closest updated schedule to the point in time when the delay occurred (or began), inserts a fragnet of activities and logic ties demonstrating the changed and/or delayed conditions, and then measures the difference between the completion dates before and after the fragnet was inserted. The difference between the TIA completion date and the schedule completion date prior to the insertion of the TIA results in the projected number of days of delay associated with the change and/or delayed condition.

Using a TIA to describe the changes to the schedule is a very effective method of showing impact. But even if no impact to the project’s final completion date occurs, it should still be done and recorded in the schedule in case of additional scope creep or if the projection of the durations and milestone dates in the TIA’s fragnet change. The use of a TIA may benefit the project in several ways if the contractor and project owner can come to an amicable resolution using the TIA:

  • The contractor will have an approved plan to progress the work as opposed to working with uncertainty as to the amount of time it has to perform its tasks.
  •  The project will also have more certainty in terms of cost, which is a benefit to both the contractor and project owner.
  • Early resolution helps keep the costs in check and gives a baseline for the contractor to work toward, which benefits the owner. Early resolution also benefits the contractor as it will have a fixed price to the change allowing it to best manage the work and be promptly paid for the changes.
  • Finally, with a TIA in place, the project will not suffer from the cumulative effect of uncertainty as a result of unresolved potential delay items. Unresolved delays can create poor a working environment between the owner, contractor, and subcontractors, and demonstrate a lack of direction as to where the efforts need to be spent.

If the above procedure does not lead to an agreed‐upon impact, or if the owner is rejecting the schedule with the TIA inserted, there are still ways to keep track of the impact to assist in resolution at a later date. Log notes, for example, can be kept on many software platforms to describe delays to a particular activity. Schedule narratives that accompany a schedule submission to the owner can more completely describe the delays to a project, providing the reason behind the fact that particular activities are not starting or finishing on time.

The concept of pacing is another related concept that contractors should be wary of when implementing mitigation efforts for delays. Contractors have no duty to “hurry up and wait” and thus can pace the work if they are awaiting the completion of an owner-caused delay. But there is another old saying that should be heeded: “Make hay when the sun is shining.” Too often work that started as pacing far behind the owner-caused critical delay path becomes near-critical or even critical path work. This occurs when the delayed path suddenly speeds up or when the pacing is just too slow. But regardless of the reason, it can obfuscate delay arguments. Paced work becomes yet another area requiring explanation, potentially notification, and documentation support to sufficiently produce and defend a delay claim. Thus, pacers, beware.

Conclusion

Mitigation is tricky territory for a contractor that requires careful attention so as not to erroneously waive claims or incur project delays and costs that are not tracked and are unexplained. By being fully aware of all notice requirements, and providing notice regarding a change issue even if the contractor believes it may be able to mitigate delays in the future, the contractor can start the documentation to help protect and preserve its claim. By flagging key documents related going forward, the contractor will help support potential future claims. By making notes in the project schedule with fragnets or recording delay issues in its schedule narratives, it can help to communicate potential delay issues to the owner and the subcontractors. Finally, the contractor should be clear in communicating about what work it may be pacing and when it is, or is not, volunteering acceleration so that it does not obfuscate future potential claims.

John Kimon Yiasemides is a senior director at Ankura in Washington, D.C.


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