How to Handle Delay Disputes

Delays push out projected end dates and contribute to budget increases in more ways than one.

Just a few months ago, students at the University of Georgia were left without housing. A newly constructed apartment complex with the highly personalized name of William experienced many challenges during the project lifecycle, jeopardizing the promised move-in date due to extreme delay.

Yet despite the real possibility that the complex would not be ready in time,  the complex doled out leases left and right. Unfortunately, this possibility became a reality, as the promised move-in date was pushed back just days before students had planned to move in. And this continued to happen over and over again.

Atlanta News First noted labor and material shortages as the root cause for the delay. This left hundreds of students without their promised housing, and if you took a look at William’s Google Reviews, growing frustration with the complex.

 

 

What’s more, following the initial delays, temporary housing offered at local hotels was abruptly canceled. The complex then offered students $2,500 housing vouchers, but only if they agreed not to sue the complex. Understandably, Williams did not want to end up in hundreds of lawsuits with university students, but they did break hundreds of contracts by failing to meet the move-in agreement.

 

Delays in Construction: An Inescapable Reality

 

Situations like this are all too common in the construction industry; anyone familiar with the construction process is no stranger to delays or their consequences. They plague the industry and have a compounding effect on more than just projected end dates. The worst ones end in legal claims, disputes, and lawsuits among multiple stakeholders as well as secondary “victims,” like hundreds of angry university students without a place to live.

However, with all of the challenges impacting the industry, it is no surprise that many firms get wrapped up in delays during their projects’ lifecycles.  As a result, these situations absolutely affect the flow of money following project completion. Whether you are a General Contractor or an Owner, delays cost money and litigation costs even more.

 

Common Causes of Delays

 

Projects can be delayed for several reasons. According to a recent article in Dumpsters.com, some of the most common causes of delays include:

  • Weather
  • Pandemics (e.g., Covid)
  • Governmental Actions
  • Labor Shortages
  • Supply Chain Disruptions
  • Poor Construction Planning & Construction Management Techniques
  • Change Orders and Other Unforeseen Site Conditions

 

Consequences of Delays

 

Whatever the cause, every project stakeholder has witnessed the negative consequences that result from project delays. Delays push out projected end dates and contribute to budget increases in more ways than one. Reducing just one of these risks could save you millions.

  • Extended General Conditions
  • Prolongation of Revenue Generation of Asset
  • Acceleration and Inefficiencies
  • Interest Carry on Bank Loans
  • Dispute Resolution and Claims Management Fees
  • Liquidated Damages
  • Mismanagement of Project Turnover
  • Impacts to Relationships

 

Extended General Conditions

 

When projects take longer, the monthly costs for Management Personnel (PMs, Schedulers, Engineers, Superintendents) and Equipment (trailers, trucks, printers, cranes, storage, etc.) continue past plan increase.

 

Prolongation of Revenue Generation of Asset

 

You cannot lease out space, utilize, or sell an asset until it is completed. Therefore, delays impact the start of revenue generation, impacting a company’s return on investment (ROI).

 

Acceleration and Inefficiency Costs

 

When activities become delayed, stakeholders become concerned. As activities get delayed, people make decisions to accelerate. This decision traditionally results in the added costs of acceleration (hiring more people, bringing in more equipment, paying for expedited material delivery, etc.) and possible added costs for the resultant inefficiencies that happen as a part of the acceleration (rework, miscommunication, competing trades, overlapping trades, rescheduling, etc.).

 

Interest Carry on Bank Loans

 

When you borrow money to build an asset, you cannot pay it back until it generates revenue. During periods of delay, the opportunity to generate revenue is pushed back while interest continues to accrue, sometimes at a higher rate.

 

Liquidated Damages

 

Liquidated damages specify a fixed amount of money owed to one party if the other fails to meet certain contractual obligations. Contracts contain these clauses to protect certain parties from the consequences of delays. Whether it’s the owner minimizing financial risk on project turnover or the vendors they sell to when the asset isn’t ready for them to move in, these costs are usually very high and often disputed.

 

Impacts on Relationships

 

When disputes arise, they often strain or end relationships between project stakeholders and communities at large. How do you think William will manage the PR crisis created by all the negative reviews and sentiment following their failure to accurately forecast the building’s completion, leaving hundreds of students displaced? I suspect they will have much relationship-mending to do following this crisis…

 

Mismanagement of Project Handover/Turnover

 

If stakeholders do not accurately forecast when a project will actually be completed, then they cannot have an efficient plan for takeover. For example, they may hire a full staff of agents to sell apartments, and when they show up, there are no apartments to show. Or a large corporation may sell its current building and then have hundreds of people displaced because the new building wasn’t ready. Companies making decisions based on an unrealistic end date is a frequent occurrence. And, just like William at UGA, it rarely goes in their favor.

 

Dispute Resolution / Claims Management Fees 

 

This is one of the most impactful and costly impacts of project delays. Delayed projects result in arguments, claims, and disputes. In most cases, the parties involved must hire lawyers and consultants to navigate through the mess, and these hires are not inexpensive.

I know from firsthand experience the heavy fees associated with delays. After all, I was one of those consultants charging $250/hr to pour over project schedule files, but I’ll save more on that later.

 

Why You Must Keep an Eye on Delays

 

Regardless of the cause of a project delay or its consequence, it is important to document and study project delays throughout the project lifecycle. Then, you can keep an eye on the prospective end date and make decisions best suited for the kind of delay your project is experiencing.

The reason is that delays of all types not only affect your critical path, but the delays also consume float as well. Float is embedded into the schedule as a form of protection against delays. However, consuming it greatly hinders the contractor’s ability to allocate resources effectively and properly sequence activities.

 

 

Additionally, as noted in Common Sense Construction Law, having to rework the sequence of activities may add other costs to perform those activities properly.

Owner-caused delays may consume float and ultimately have an impact on the critical path. When all of the float is used, any further contractor-caused delays are critical. That is, they directly impact the critical path and end up costing the contractor money. (Smith, Currie, & Hancock 281)

As seen above, delays can be caused by both parties. What’s more, determining which party caused the delay – and the reason behind it – is mandatory. Not only is this outlined in the contract, but the findings also inform how the delay will be handled and how value will be transcribed, given that many delays end in claims and/or disputes.

 

Claims & Disputes

 

Claims result from problems happening on a project. Construction Project Management defines a claim as “a request by one party to adjust the terms of the contract.” They are typically made by a General Contractor to Owners, requesting more time or money. The owner then responds by either agreeing to the request, agreeing to some of it, or completely rejecting it. If the contractor disagrees with that decision, then the claim becomes a dispute (Dykstra 347).

Here is how I view the claims process:

A claim is an ask. And you can ask for money all you want to, but the issue is what the other party is willing to give you. A dispute is a refusal to pay until enough information is presented to warrant the requested time and/or money.

This is the point where problems start to arise. If you submit a claim, the other party will ask what happened. If you cannot prove what happened, then the other party will not believe you.

For example, if you were to submit a claim for damages due to a hurricane and factor in delay costs, the insurance company will ask if your project was on track in the first place. Let’s say you didn’t really know or, at the very least, could not prove that the project was on track. At this point, you would be asking for something before proving the cause.

By and large, this process is convoluted and arguable. Fortunately, there is a better, data-driven approach to handling delay disputes that is feasible, accurate, and reliable.

 

How to Avoid the Consequences of Delays

 

During the delay-dispute process, there is one document that has the potential to prove or reject a delay claim: the schedule. However, all too often, the root of nasty disputes is the result of garbage schedules; as the age-old adage says, “garbage in, garbage out.”

Parties argue whether this or that caused a delay, but most of the time, everyone is wrong. That’s because many schedules are so poorly developed that nobody can pinpoint when or what caused the delay.

So, my question is, why go to dispute if nobody can make heads-or-tails of the data?

If project teams made it a ritual to review their schedules for quality during every update, then the claims process would likely not end in a dispute. The owner could see what caused the delay and give you the resources you need to be successful. However, to effectively mitigate delays, it’s crucial to know when they occur and understand their impact on the overall project timeline.

 

 

Strategies for Delay Mitigation

 

Again, first and foremost, prioritizing high-quality scheduling is essential. This doesn’t refer to improving duration estimates or predicting potential outcomes. It rather focuses on fostering a culture that values data-driven decisions – based on highly accurate data. Often misunderstood, schedule quality should be perceived as a continuous process or workflow. It includes a site of practices that are the hallmark of companies known for consistently completing projects without conflict. Note that consistency is of the utmost importance.

From there, you should make it a habit to study critical and near-critical path delays during the project lifecycle, period after period.

Studying critical and near-critical path delays shows you what happened to the critical path following a delay. This process is a means to decide whether to take certain actions like acceleration or changes in resources on your project following a delay. There are several ways to do this. The following methodologies are explained by AACE, which I have summarized in the table below.

 

Delay Analysis Techniques

 

Definition Risks
As-Planned vs. As-Built Compares the final “as-built” schedule to the original baseline schedule Runs on the assumption that the baseline schedule was static and unchanging, making the analysis at a high risk of being inaccurate with potentially subjective findings.
Collapsed As-Built Methodology Takes into account all changes in the schedule from the beginning of the impact period through the end of the project, then reverts all changes to the baseline schedule for analysis. Runs on the assumption that all changes to the schedule are accurate and reflect reality; Requires a project to be finished before analysis; Heavily contested in courts, used to discredit the party deploying it.
Time Impact Analysis (TIA) Inserts a series of activities representing delays and impacts into the schedule to quantify the delay, either prospectively or retrospectively. TIA works if delayed activities are tracked to completion before the delay is quantified and approved. If conducting this analysis prospectively, the delays haven’t happened yet, making the analysis subjective and, therefore, arguable. If performed retrospectively, this method may assume that the “as-built” data reflects what was known at the time, thus misrepresenting delay.
Window Analysis Delay is analyzed between two successive updates, using an as-planned vs. as-built approach but accepts changes in the second update as the basis for the analysis in the next period, or “window.” If there are elevated levels of accepting changes to the schedule, then it can be rendered unrealistic due to the likelihood of skewed results.  However, this approach is the industry’s most accepted methodology.

 

 

Embracing Proactive Strategies

 

In many cases, you cannot avoid delays. They are inevitable. But, you can mitigate them by understanding the schedule thoroughly and putting processes in place to discuss delays in real time. Unfortunately, this typically does not happen. Being upfront about problems on the job site is simply not the standard operating procedure in the construction business.

However, if you were to discuss mitigation strategies with the appropriate stakeholders, then you would not end up in that spot. The goal is to finish the project and not end up in a dispute resulting in ended relationships.

 


 

Works Cited: 

Smith, Currie, and Hancock. Common Sense Construction Law: A Practical Guide for the Construction Professional, edited by Kheller Jr, Thomas J., and G. Scott Walters. 4th ed., John Wiley & Sons, Inc., 2009.

Dykstra, Alison. Construction Project Management: A Complete Introduction. Kirshner, 2011.

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