Construction Claims Article Series - Delay, Disruption and Prolongation Claims

Our construction claims article series commenced with an article on change and variation claims which was followed by price acceleration claims. This article on delay, disruption and prolongation claims is delivered in collaboration with Anvelo, and is the third article in our series of construction contract claims articles and will be followed by articles on different site conditions claims and progress claims, concluding with damages claims.

Introduction

Delays in construction can occur for a multitude of reasons, leading to negative outcomes for principals, contractors and subcontractors. For principals, delays can lead to financial burden, inconvenience, and legal costs. For contractors, delays can risk liability for liquidated damages, reputational damage, cash flow constraints, and disputes.

In construction law, time is money, and delays, either intentional or otherwise, can expose the parties to unnecessary costs. This article discusses causes for delay, disruption and prolongation claims along with consequences of delay for all parties involved, and strategies for mitigating claims of that nature.

What is a delay claim?

A delay claim often arises when a project isn’t completed within the timeframe initially agreed upon in the contract (i.e. the date for practical completion). The nature of this claim will typically involve a contractor seeking an extension of time (EOT) to the date for practical completion in accordance with terms of the contract. The circumstances in which the contractor can seek an extension of time will typically be pre-defined in the contract as ‘qualifying causes of delay’. Where delays caused to the project are compensable causes of delay, the contractor may also claim delay costs. There are instances where qualifying causes of delay may not be compensable, as discussed later in this article.

Causes of delay

Common causes of delay on a construction project include:

site access issues or any other act, default or omission of the Principal or it’s consultants, agents or other contractors;
delays in authority approvals or permits;
variations;
unforeseeable inclement weather; and
latent conditions, including;
- unexpected subsurface conditions (rock formations);
- soil contamination; and
- unchartered underground infrastructure or services (old plumbing systems, utility lines etc.).

Compensable causes of delay will typically include any act, default or omission of the principal or it’s consultants, agents or other contractors.

What is a prolongation claim?

A contractor may have a right to prolongation costs in circumstances where the contractor is on site for longer than initially anticipated due to delays resulting from factors that are either caused by the principal, or risks that the principal bears under the contract. Prolongation claims often involve seeking monetary compensation for extended labour charges and other indirect costs incurred because of the prolongation. Prolongation claims can be thought of as the financial element of a delay claim where the risk of the delay event falls on the principal, although it is important to note that just because an EOT is granted, this does not mean that the contractor will be entitled to prolongation costs, unless the reason that an EOT is granted is due to a compensable cause of delay. Even in this case, the contractor will still need to prove up its actual damage incurred from the compensable cause of delay. We will discuss this more later.

Causes of prolongation

Causes of prolongation on a construction project are largely the same as the causes of delay mentioned previously, but are typically limited to delays where the risk of that delay falls onto the principal, such as:

extensive delays on approvals to variations;
repeated latent condition issues;
unjustifiable late payment; and
delays in EOTs being approved.

What is a disruption claim?

A disruption claim usually arises when a contractor’s pre-defined program is disrupted but does not ultimately affect the date for practical completion. These types of claims are associated with reductions in the efficiency of the works which cause the contractor to incur more costs than originally budgeted or programmed for. Disruption claims are different to delay and prolongation claims as they are not time-related claims.

Disruption may lead to delay, and delay may lead to disruption, but both can exist without one another.

Causes of disruption

Common causes of disruption on a project in the construction industry include:

late variations to designs;
site access issues;
bad coordination between trades on site;
changes in construction methodology;
inclement weather;
late delivery of materials; and
unnecessary interference of the Principal.

Making a claim

To maximise chances of success in making a delay, disruption or prolongation claim, it is essential prior to the initiation of the claim that you have thoroughly reviewed the relevant clauses of the contract that define qualifying causes of delay and compensable causes of delay and outline the procedures for claiming EOTs and variations.

Thorough review of contract clauses

With clauses varying from contract to contract, it is essential to understand the broader context in which these delays operate. All construction contracts should contain a commencement date, a date for practical completion, and a defects liability period. The commencement date in a construction contract is the date on which the works under the contract (WUC) are scheduled to begin. The date for practical completion will be the date scheduled for the WUC to reach practical completion, minus any minor defects that do not substantially affect the use or enjoyment of the works. This can either be stated outright or worked out by reference to the commencement date (for example: “180 Business Days after the commencement date”) or the date that the contractor was given access to the site (for example: “180 Business Days after the date that the Principal gives the contractor access to the site”.

Subject to the specific terms of the construction contract, if the contractor does not complete the WUC by the date for practical completion, liquidated damages will usually be payable, and the contractor may be liable for a rate of damages (which must be a genuine pre-estimate of the principal’s loss) for every day beyond the date for practical completion that it takes the contractor to complete the works. This will occur unless the contractor is able to obtain an EOT to the date for practical completion from the principal, which will depend on the cause and reason for the delay.

Because disruption claims are not time related, EOT and delay costs clauses are not relevant. In Australia, these types of claims will typically be priced as variations. As such, it is important that both parties are familiar with and comply with the variations clauses.

Notice

Again, subject to the specific terms of the construction contract, making a claim seeking an EOT due to factors that have impacted time and/or progress of WUC, requires written notice of the cause of delay, the estimated impact on time and, if the delay is a compensable cause of delay, cost of the delay as well as a new estimated timeframe by which the WUC will be completed. Variations for disruption claims also require notice to be given in accordance the terms of the contract.

A common cause of dispute over claims of this nature often arises from claims issued outside the timeframe specified in the contract or claims issued in conflict with requirements in the contract. Accordingly, it is essential that the parties to the contract comply with the timeframe and process for seeking EOTs, delay costs and variations set out in the contract.

Evidence

To substantiate a delay, disruption or prolongation claim it is essential that the contractor is able to provide clear and contemporaneous evidence that supports the reason for making a claim.

Examples of evidence needed to substantiate a claim may include:

project schedules;
labour logs;
original correspondence (this could be discussion regarding unforeseen events between experts and contractors or contractors and subcontractors) that has impacted the timeliness and/or costs of the project;
photographic evidence of site conditions or other relevant matters; and
receipts containing expenses incurred over the duration of the WUC.

Robustness

A robust claim will always consider and satisfy the following three (3) elements:

Contractual consideration – as described above, contract compliance must be satisfied.
Factual preparation – along with the examples above, it’s important to ensure the evidence has a logical flow that clearly articulates the claimant’s perspective. This includes appropriate levels of evidence being put forward.
Technical robustness – ensure that the analysis is sound. This can be done by adopting a recognised method of analysis (demonstrating proof), which is accepted by both industry best practice and the contract. It is best to incorporate actual circumstances to ensure that the resulting impact is accurate.

Pitfalls

Despite a claimant’s best efforts in preparing a claim, some common pitfalls that lead to claims not being approved include:

Claimant’s lack of firstly satisfying any notice obligations;
No agreement with a baseline / as-planned position;
Evidence supporting productivity assumptions;
Realistic and reasonableness of program durations that can justify the pace of works to be performed i.e. ensuring adequate levels of resources on-site;
Complying with program submissions and updates that may form the basis of an analysis. This is particularly important in delay and prolongation claims that require satisfactory evidence of critical path delay;
Over-exaggeration of the claimant’s position;
Disputes on who owns the float.

Engaging with the Principal

When notice of a claim is delivered (in accordance with the contract) to the superintendent, principal or equivalent, they are required to respond to that claim promptly in accordance with the terms of the contract. If the claim is rejected, disputed or only partially approved it is essential to follow the correct procedure in accordance with the contract or where there is absence of this:

dispute the rejection or partial approval;
seek legal advice in preparation for an adjudication; or
commence the dispute resolution process or litigation (as a last resort).

Ways to mitigate delay, disruption or prolongation claims

Mitigating delay, disruption and prolongation claims is about maintaining a positive project momentum, maintaining positive relationships and properly projecting time and costs. Through implementing simple yet efficient planning and communication techniques, the potential risk of dispute can be drastically minimised. Some delays and disruptions are unavoidable, however there are methods to minimise these issues and their impact in construction projects including:

using a detailed design and construction program which reflects realistic achievements in realistic timeframes that is updated in accordance with real-time events;
conducting periodic risk assessments to identify the rise of potential sources of delay or disruption;
establishing a good relationship and avenue for communication between all parties involved in the WUC;
ensuring effective and organised management of variations that are a common source of delay and disruption of WUC;
ensuring accurate record keeping and maintaining detailed records of progress, site conditions, labour hours and equipment hire/usage, in order to substantiate potential claims; and
ensuring all parties to the contract are aware of, and comply with, the terms of the contract.

Conclusion

Delay, disruption, and prolongation claims are common in construction projects and often result in costly disputes if not properly understood or managed. While each claim can arise from different project impacts, from restricted site access to unforeseen weather conditions and delayed approvals, the nature of these claims may overlap and require careful contractual and legal analysis.

To mitigate the risk of such claims, parties should invest in clear programming, proactive communication, thorough record-keeping of correspondence and relevant matters and any variations to the WUC as well as maintaining awareness of contract terms throughout the life of a project. A good contract with clear, specific entitlements and timeframes and early identification of potential issues can significantly reduce exposure to unwanted costs and/or further delays, disruptions and prolongations.

Please don’t hesitate to contact us if you have any queries about delay, disruption or prolongation claims, or construction contracts generally.