by Jason Ebe, Snell & Wilmer, LLP
Our construction attorneys frequently represent subcontractors and other construction professionals in disputes regarding delays, disruption, acceleration, inefficiency, cumulative impact and alike. Based on that experience, this article provides a summary refresher on some of the more important do’s and don’ts with respect to subcontractor project scheduling and claims analysis.
Do prepare a schedule at the time of the bid. Your superintendent and other time-based costs are tied to that schedule. Don’t assume that the time allowed by the owner or the general contractor will be sufficient and that you can come up with a schedule to fit the work after the subcontract is awarded. Under applicable case law, the subcontractor’s bid could be argued as a warranty to the general contractor or owner that the subcontract time is sufficient (not the other way around). Do document your bid assumptions as to the schedule including, where applicable, a critical path, logic ties between activities, and resource allocation.
Do seek to use subcontract form or terms that provide a fair allocation of rights and obligations with respect to project scheduling. For example, use the ASA Subcontractor Bid Proposal—part of the ASA Subcontract Documents Suite available free to ASA members under “Contracts and Project Management” in the Member Resources section of the ASA Web site by logging in at “LogIn/Access Member Resources”—to condition your bid on the use of a ConsensusDocs 750 Standard Agreement between Constructor and Subcontractor. The ASA-endorsed ConsensusDocs subcontract form provides the following language:
Subcontractor shall provide Constructor with any scheduling information proposed by Subcontractor for the Subcontract Work. In consultation with Subcontractor, Constructor shall prepare the schedule for performance of the Work (“Progress Schedule”) and shall revise and update such schedule, as necessary, as the Work progresses. The Progress Schedule binds each Party and all subsequent changes and additional details shall be submitted to Subcontractor promptly and reasonably in advance of the required performance. Constructor shall have the right to determine and, if necessary, make reasonable changes to the time, order, and priority in which the various portions of the Work shall be performed and all other matters relative to the Subcontract Work. To the extent such changes increase Subcontractor’s time and costs, Subcontractor may seek equitable adjustment in the Subcontract Amount or Subcontract Time in accordance with the Subcontract Documents.
Need tips to negotiate this language with your general contractor? Do use the ASA Subcontractor’s Negotiating Tip Sheet on Project Schedule—also located under “Contracts and Project Management” in the Member Resources section of the ASA Web site. This tip sheet includes helpful points to negotiate your terms:
When the GC Says: “You’re going to have to be flexible and adjust your schedule as necessary.”
The Sub Should Say: “I understand that you may have to make subcontract schedule changes, but I can’t agree in advance to adapt and adjust my work to suit your needs without the right to more money and an extension of time for me to finish my work.”
When the GC Says: “Don’t worry. We’re going to have everything ready for you.”
The Sub Should Say: “I can’t make the schedule unless your jobsite utilities are ready on time, and my submittals are approved and returned promptly.”
When the GC Says: “We don’t pay for acceleration. You just have to be flexible.”
The Sub Should Say: “If my work doesn’t start on time because of project delays, I’ll need to be paid for my acceleration costs or be allowed more time to finish.”
When the GC Says: “Time is of the essence on this project. There’s never an excuse for not getting the job done on time. You’ll be held fully responsible.”
The Sub Should Say: “We agree to make a good-faith effort to help you meet your completion date, but we can’t give up any delay claim rights if we incur more cost for reasons outside of our control.”
Do keep your schedule updated—not just short-term, look-ahead schedules but the project schedule as a whole. Do it regularly, perhaps with every pay application, so all parties are apprised of the impact of conditions as they occur. Send out notices of impacts, in accordance with the claims provision in the subcontract, if at all possible. Moreover, even if you fail to provide the contractually required notice, submission of periodic updates should help in disputes where one party argues it had no idea that the schedule was being affected.
Do provide prompt written notice of all delays and impacts to the schedule, and comply as best as possible to all contract notice provisions to avoid having your claim disapproved for a failure to provide notice. Don’t assume a prior course of dealing with respect to claims or actual notice is an appropriate substitute for compliance with the contract requirements. It will only cost you additional attorney fees to argue over the notice issue.
Do include as much information as you can at an early stage even if time and cost impacts are estimates only at the time of the notice. Do include downstream subcontractors and suppliers.
Do review your subcontract to see what is recoverable in addition to a time extension. Many contracts may have limitations on recovery of overhead (direct and/or home office), profit and the like on delays even if compensable. Do negotiate these provisions if possible. Use the ASA Subcontract Addendum—also part of the ASA Subcontract Documents Suite—which provides:
Subcontractor shall be entitled to equitable adjustments of the contract price, including but not limited to any increased costs of labor, supervision, equipment or materials, and reasonable overhead and profit, for any modification of the project schedule differing from the bid schedule, and for any other delays, acceleration, out-of-sequence work and schedule changes beyond Subcontractor’s reasonable control, including but not limited to those caused by labor unrest, fires, floods, acts of nature or government, wars, embargos, vendor priorities and allocations, transportation delays, suspension of work for non-payment or as ordered by Customer, or other delays caused by Customer or others. Should work be delayed by any of the aforementioned causes for a period exceeding ninety (90) days, Subcontractor shall be entitled to terminate the subcontract. Subcontractor change proposals must be processed in not more than thirty (30) days or as otherwise indicated on the change proposal.
Do know whether there is any case law or statutes that affect the enforceability of these provisions and consult with a knowledgeable construction attorney if needed. Do expressly reserve any claims that you can’t completely or quantify right away (for example, cumulative impact). Failure to do so may result in waiver of that portion of the claim.
Do keep track of all your costs from the impact and put in place accounting mechanisms to track such charges. Do reserve your rights to pursue these claims, in your contracts, change orders, lien waivers, and pay applications. Don’t assume you can compute a persuasive damages figure by comparing total costs to bid costs. The total cost method is disfavored and is widely rejected, particularly now with scheduling and claim digger software.
In the event of a delay claim or dispute during the project, and subject to the contract requirements, do keep working. Suspending work without justification under the law or the contract will usually make a bad situation much worse. Don’t terminate or threaten that action without a comprehensive review of the contract, key project documents and the pertinent facts, and legal consultation with your construction attorney. Aside from personal injury or death, contract termination is the most disruptive event that can occur on a construction project and will almost certainly result in contentious and expensive litigation. If you are on the receiving end of the termination threat or notice, do immediately seek experienced legal counsel. Time will be of the essence. Any wrong move can have long lasting consequences.
When resolving claims, do be mindful of waivers. Pay applications and acceptance of payments (whether progress or final) may constitute waivers of claims that arose prior to the application for payment and not preserved depending on your contact and pay application form. In addition, be careful when signing lien waivers. Lien waivers by their language may waive not just liens but claims of any nature. Under general case law, acceptance of final payment by a general or subcontractor could be a waiver of any claims for payment not reserved. From the owner’s perspective, making final payment in most cases is a waiver of any claim for delay, for example, liquidated damages.
Do comply with all applicable notice of claim statutes or ordinances. This is even more critical in claims involving public owners for which state statutes, local ordinances, and/or other requirements may apply for timely and proper notice of claims. Don’t expect the court to excuse your failure to comply. Don’t create another issue for your attorney to fight about. If you lose the issue, the claim may be dismissed.
Do engage the appropriate professionals at an early stage. This includes not just legal counsel experienced in delay claims but also the right expert (either as a consultant, testifying expert, or both). Do find an expert who has performed critical path analysis both in and out of claim situations (in other words, with real world experience). Do make sure the expert has a plan for analysis and presentation of the claim in a manner that has already been accepted by the court. Don’t assume that an expert’s creative approach will translate into recovery if the methodology has not previously been accepted as legitimate by the counter. Do take time to walk the expert through not just the documents but also provide the expert with the opportunity to interview the key project personnel in the trenches so the expert has an adequate picture of what happened. Do be sure that your claim shows entitlement, causation and damages. Don’t assume that if you can show enough impact the court will award your damages without a showing of causal connection.
Jason Ebe is a partner in Snell & Wilmer, LLP’s Phoenix office and leads the firm’s national construction practice. He is a former chair of the ASA Attorneys’ Council. He can be reached at (602) 382-6240 or firstname.lastname@example.org.