The old saying “Time is money” has no more obvious application than in construction. The sooner a contractor finishes a project (consistent with quality construction, of course), the less the cost of construction and the quicker he can focus on other projects. The sooner an owner has a completed project, the quicker it is open for business (if a commercial project) or useable for living (if residential). Both sides want to get the job done quickly. And when either side delays the other beyond an agreed completion date, there can be financial consequences.
From the owner’s side, an unexcused contractor delay – generally, anything not occasioned by an owner-imposed change, a supply shortage, or unusually severe and unexpected weather – is most often handled with a “liquidated damages” clause in the contract, providing for a fixed amount to be paid by the contractor per day of delay. From the contractor’s side, dealing with an owner-caused delay is rarely so simple. If the delay results from a change requested by the owner, the compensation for the contractor’s extra time on the job will be built into the change order price. But what if the owner delays the job due to financing woes, or difficulties in dealing with permitting, or simply slow decision-making? An extension of time to complete is nice, but puts no money in the contractor’s pocket. Cost escalations, idled labor and/or equipment, extended field office overhead, unabsorbed home office overhead, even additional materials storage costs can rear their ugly heads if the delay is lengthy. Unless the parties’ contract specifies that an extension of time is the contractor’s sole remedy for owner-caused delays, a fight may be looming.
It is not an easy fight to win. The contractor’s right to compensation for delays depends in the first instance on whether “time is of the essence” of the parties’ contract. Otherwise a stated completion date will be deemed by the courts as a guideline rather than a deadline, and a delay of reasonable duration will be forgiven. Normally, time is not of the essence unless it is expressly stated to be. Guy v. Hanley, 111 N.H. 75, 75 (1971) (“The general rule is that unless specifically so stated, time is not to be considered as of the essence” and “[t]he mere fact that a date is stated in the instrument is not sufficient alone to alter this rule.”).
Even if time is of the essence, the owner’s promised performance must be identified before a breach of that performance will be found. A contract which speaks in terms of completion of the contractor’s performance but mentions nothing about the owner’s duties (other than payment) presents a harder case for compensation than one which specifies and sets deadlines for the owner’s performance of particular items (getting permits, removing obstacles, turnaround time for making decisions, etc.). Nevertheless, contracting parties have an implied obligation not to hinder each other’s performance. That is sometimes enough to justify a finding of breach by an owner.
Assuming that an owner breach is present, delay damages are recoverable only if the breach actually causes the delay. When there has been a concurrent delay -- if the contractor’s completion would have been delayed anyway due to causes not attributable to the owner -- that portion of the delay will not be compensable. Moreover, “a party seeking damages occasioned by the fault of another must take all reasonable steps to lessen his or her resultant loss,” Grenier v. Barclay Square Commercial Condo. Owners' Assoc., 150 N.H. 111, 119 (2003). To mitigate his damages, the contractor must find other available work to occupy his work force and absorb part of his overhead once he knows that a delay will befall him.
Lastly, if the contractor clears all of the foregoing hurdles, he has one remaining: proof of the amount of damages with reasonable certainty. I’ll talk more about the difficulties of proving delay damages in a future blog (particularly about the so-called Eichleay formula for proving unabsorbed overhead), but for present purposes, suffice it to say that a contractor who is delayed by an owner has a tough road to hoe in collecting compensation.
From the owner’s side, an unexcused contractor delay – generally, anything not occasioned by an owner-imposed change, a supply shortage, or unusually severe and unexpected weather – is most often handled with a “liquidated damages” clause in the contract, providing for a fixed amount to be paid by the contractor per day of delay. From the contractor’s side, dealing with an owner-caused delay is rarely so simple. If the delay results from a change requested by the owner, the compensation for the contractor’s extra time on the job will be built into the change order price. But what if the owner delays the job due to financing woes, or difficulties in dealing with permitting, or simply slow decision-making? An extension of time to complete is nice, but puts no money in the contractor’s pocket. Cost escalations, idled labor and/or equipment, extended field office overhead, unabsorbed home office overhead, even additional materials storage costs can rear their ugly heads if the delay is lengthy. Unless the parties’ contract specifies that an extension of time is the contractor’s sole remedy for owner-caused delays, a fight may be looming.
It is not an easy fight to win. The contractor’s right to compensation for delays depends in the first instance on whether “time is of the essence” of the parties’ contract. Otherwise a stated completion date will be deemed by the courts as a guideline rather than a deadline, and a delay of reasonable duration will be forgiven. Normally, time is not of the essence unless it is expressly stated to be. Guy v. Hanley, 111 N.H. 75, 75 (1971) (“The general rule is that unless specifically so stated, time is not to be considered as of the essence” and “[t]he mere fact that a date is stated in the instrument is not sufficient alone to alter this rule.”).
Even if time is of the essence, the owner’s promised performance must be identified before a breach of that performance will be found. A contract which speaks in terms of completion of the contractor’s performance but mentions nothing about the owner’s duties (other than payment) presents a harder case for compensation than one which specifies and sets deadlines for the owner’s performance of particular items (getting permits, removing obstacles, turnaround time for making decisions, etc.). Nevertheless, contracting parties have an implied obligation not to hinder each other’s performance. That is sometimes enough to justify a finding of breach by an owner.
Assuming that an owner breach is present, delay damages are recoverable only if the breach actually causes the delay. When there has been a concurrent delay -- if the contractor’s completion would have been delayed anyway due to causes not attributable to the owner -- that portion of the delay will not be compensable. Moreover, “a party seeking damages occasioned by the fault of another must take all reasonable steps to lessen his or her resultant loss,” Grenier v. Barclay Square Commercial Condo. Owners' Assoc., 150 N.H. 111, 119 (2003). To mitigate his damages, the contractor must find other available work to occupy his work force and absorb part of his overhead once he knows that a delay will befall him.
Lastly, if the contractor clears all of the foregoing hurdles, he has one remaining: proof of the amount of damages with reasonable certainty. I’ll talk more about the difficulties of proving delay damages in a future blog (particularly about the so-called Eichleay formula for proving unabsorbed overhead), but for present purposes, suffice it to say that a contractor who is delayed by an owner has a tough road to hoe in collecting compensation.
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