Construction Delay and Cost Overrun Claims

Who is to be held accountable when project delays and cost overruns arise?  Multiple parties are active on most projects.  There are project owners, developers, planners, designers, contractors, suppliers, financing entities and government agencies. All can influence whether there will be delays and cost overruns.

Project owners and contractors are usually the ones that sustain losses when a project encounters delays or additional costs.  That is not to say that design consultants do not also lose money.  But the claimants are usually owners and contractors.

Owners claim damages for out of pocket costs, lost interest and loss of use resulting from delays.  Contractors claim damages for additional out of pocket costs, idle equipment and manpower, and sometimes lost opportunity.

The causes of project delays and extra costs can be many and often intertwined making it difficult to allocate to specific project participants. Some of the more typical causes:

  • Owner Initiated Changes in the Design During Construction
  • Unanticipated Consequences of Changes in the Design
  • Errors in the Design
  • Design that is Too Specific or Too General
  • Disputes over Acceptance of Completed Work
  • Unanticipated Weather
  • Unanticipated Project Site Obstacles
  • Unanticipated Regulatory Issues
  • Project Financing Issues
  • Delays in Obtaining Materials or Equipment
  • Poor Scheduling or Sequencing of Construction Activities
  • Delays in Shop Drawing Approvals
  • Accidents

Sorting out these issues when they arise can be difficult.  When disputes arise and contractors threaten to walk off the job, it can become necessary to reach an interim agreement under which the work can proceed.  This often involves setting up a fund with contributions from each of the potentially at fault parties with an agreement to sort out the details after the project is completed. An interim agreement makes sense when the consequences and costs of delaying the completion are not acceptable.

At some point in time, however, the consequences of delays and cost overruns need to be sorted out with finality.  A cooperative spirit, willingness to listen to each point of view, and negotiation in good faith are very important elements of the process of sorting out causes and fault.  Without these elements the dispute can go into a long and very costly formal process of litigation.  And litigation is not well suited for these kinds of disputes.

Following are some thoughts about how to tackle this kind of dispute before it reaches a  lengthy and costly formal litigation process that can yield an unpredictable outcome.

Chalk Talk

This is a meeting with a chalk board where information can be shown in an orderly manner.  Perhaps this has evolved to using a laptop with a large spreadsheet display that all participants can view.

The various participants on a project gather to discuss and allocate the various losses incurred as a result of project delays and additional costs.  First the size of the “pie” to be apportioned needs to be defined.  Each party that asserts a claim for additional compensation is requested to list the elements of their claim including the amount and their view as to the cause of the problem.

Several columns need to be provided for both the amounts and the causes as there will be differing views on both what the amounts should be and what the causes are perceived to be.  It is best to allow each point of view to be concisely expressed on what sometimes becomes a rather large tabulation.

This approach allows breaking down a large, complex problem into smaller pieces that are more manageable.  If the discussion is in good faith, progress can be made toward resolving the parts of the dispute.  Often it is useful to identify the larger amount pieces and work on those because if those can be negotiated to agreement, the smaller pieces will fall into place.  Sometimes the larger pieces cannot be resolved and there is need to move on to resolving some or many of the smaller pieces thereby simplifying the problem.

One of the keys to success with this approach includes making sure that true decision makers participate.  We have seen instances where an impasse could not be overcome until a top manager with a broader perspective on the dispute, the relationships, and the effect of the dispute on other projects was able to take a more enlightened view on how to resolve the dispute.

Timeline

Another approach to sorting out accountability for project delays and the extra costs incurred is to focus on the project timeline.  Perhaps on one side of the time line, undisputed key events can be shown.  On the other side of the time line, unclear or disputed key events can be shown.  This allows quicker and more efficient focus on the "gray areas".

Possible outcomes can be defined based upon alternative interpretations of gray area facts. Individual compromises can be reached with regard to a number of gray areas and their potential outcomes.

Depicting key activities on a timeline helps sort out cause and effect relationships between events.  Sometimes this can be done as part of a meeting of the parties involved.  However, this might get into more detail and involve reliance on documentation of when specific events were scheduled and actually occurred.  This brings us to the next method technique for sorting out delay and extra cost claims.

Consultant Analysis and Report

Sometimes despite a good faith interest in finding a fair solution to this kind of dispute, it is impossible to agree on key facts.  However, it may be possible to agree on an independent consultant to go through project records and put together a clearer description of the events that resulted in project delays and extra costs.  In formal litigation the court may assign a special master.  But it is not necessary to reach formal litigation for this approach to be effective.

It is useful, however, when this approach is pursued, for the parties to put together an agreement on some ground rules.  Two of these might include agreement that the consultant’s report will be a guide and not a binding document.  The parties to the dispute need to agree on how the effort will be paid for.   The report can list clearly documented facts and can identify the key issues in dispute.

Such a consultant report can be quite effective in breaking down a large complex dispute into smaller, more manageable pieces.

Conclusion

Architects and Engineers are well trained in solving problems and depicting solutions for implementation.  Resolving complex disputes by breaking them down into smaller pieces and finding creative ways to depict them has some similarities in that large complex issues can also be broken down.  Some differences between solving complex design problems and resolving disputed issues – such as those that arise in project delay and cost overrun disputes - include personality and psychological considerations.  If the effects of those “human” obstacles can be reduced by good faith application of problem solving techniques, such conflicts can be resolved more efficiently to the benefit of all.

 

This article expresses ideas for consideration and should not be taken as recommendations applicable to any specific situation.  When making a decision on how to address a specific situation consulting with an experienced attorney is recommended.

No. 25 - Revised 10/18/2016

© 2016 John Wersyn, All Rights Reserved


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