By Jim Sienicki and Christian Fernandez, Snell & Wilmer, L.L.P.

Benjamin Franklin coined the phrase “time is money” almost 300 years ago, and it applies perfectly to the construction industry: project delays and disruptions always cost someone money. One of the leading causes of disputes arising from residential and commercial projects are delays and disruptions. While the more common delay/disruption dispute involves a project owner seeking damages from a general contractor caused by project delays/disruptions, which general contractors often seek to pin on subcontractors, often times the flow of damages is reversed: a project owner, general contractor, or another subcontractor causes a delay/disruption to a subcontractor’s work that in turn forces the subcontractor to expend additional time and resources on a project.

While delays and disruptions occur for countless reasons, the consequences of a delay/disruption on a subcontractor are often determined by 1) the applicable contract language; 2) applicable law and 3) documentation and notice of the delay/disruption.

Delay vs. Disruption Claims

Typically, a “delay” claim involves the time and cost of not being able to work. In contrast, a “disruption” claim involves the time and cost associated with working less efficiently than planned. Regardless of the type of claim, a person seeking to recover damages caused by a delay/disruption must prove that a delay/disruption occurred, the extent of the delay/disruption, that the other party was the cause of the delay/disruption, and the delay/disruption caused damages.

With disruption claims, which are sometimes referred to as “loss of productivity claims,” it is generally irrelevant whether the impacted activities lie on the critical path. Rather, disruption claims are concerned with unanticipated increases in costs incurred to perform any given work activity, such as when more labor hours or equipment hours than anticipated are required to complete a task. For example, a disruption claim may arise when a subcontractor is forced to perform work out of sequence due to the actions of another party, or in crowded conditions at the end of a project when not contemplated at the time the subcontractor bid the project.

A subcontractor’s claim for, or defense against, delay/disruption can be doomed by a lack of prior notice if required by the subcontract, by a lack of proper planning and execution, by the subcontract terms and conditions, and by not complying with the subcontract or applicable law. Therefore, being proactive about delays/disruptions is key to success.

Contract Language 

When a subcontract addresses how delays/disruptions are handled, such provisions generally control. Subcontract provisions addressing delays/disruptions come in all shapes and sizes. Therefore, it is important for subcontractors to know how a subcontract addresses delays/disruptions before executing the subcontract.

Common contract provisions addressing delays/disruptions include, but are not limited to:

• Substantial completion/time: subcontracts often define when a subcontractor is required to achieve substantial completion.
• Date of commencement: subcontracts often require that a subcontractor commence work by a specific date.
• Notice: subcontracts often require a subcontractor to provide the general contractor with written notice of a delay/disruption impacting the subcontractor’s work as a prerequisite to the subcontractor receiving an extension or compensation for the delay/disruption.
• Excusability: a subcontract may provide that certain types of delays to the subcontractor’s work are excusable, such as when a delay is due to unforeseeable causes beyond the subcontractor’s control.
• Compensability: a subcontract may limit available relief for a delay/disruption to non-compensable extensions of time. Such provisions are commonly referred to as “no damages for delay or disruption” clauses.
• Criticality: for delay claims, in order for a subcontractor to obtain a time extension or additional compensation for extended performance, the delay must affect the subcontractor’s critical path, i.e., the delay must be critical.
• Concurrency: for delay claims, a subcontract may address how a “concurrent” delay is handled. A concurrent delay is a delay caused by more than one party that occurs at the same time.
• Liquidated damages: a subcontract may contain a provision identifying a certain sum of money that a subcontractor will owe for every day past the contracted for completion date the project is late.

Because delays and disruptions commonly occur in the construction industry, subcontractors should consider closely reviewing and updating their subcontracts on these issues.

Documentation and Notice of Delays/Disruptions 

Documenting delays/disruptions as they arise during a project is important to putting a subcontractor in a strong position to assert or defend against delay/disruption claims. Equally important is a subcontractor notifying the general contractor of delays/disruptions in writing as they arise, which is often required by the terms of a subcontractor’s contract.

Failing to document and notify the general contractor of delays/disruptions as they arise may hinder a subcontractor’s ability to assert or defend against such claims. For example, the terms of a contract may provide that if a subcontractor fails to give written notice to the general contractor of a delay/disruption caused within a certain time after the delay/disruption occurs, then the subcontractor may be barred from an extension of time to perform the work or recovering costs relating to the delay/disruption.

Best practices include, but are not limited to:

• Document and communicate through daily reports, meeting minutes, and schedule updates regarding the facts surrounding the delay/disruption, including what caused the delay/disruption, who caused the delay/disruption, what work the delay/disruption is impacting, the costs resulting from the delay/disruption, and the length of the delay/disruption.
• If a delay/disruption is ongoing, continue to document the delay/disruption and provide notice of same to the general contractor.
• Diagnose the delay/disruption and resulting impact early.
• Determine what, if anything, can be done to minimize the delay/disruption and mitigate damages arising from the delay/disruption.

Defenses to Delays/Disruptions 

The defenses a general contractor may assert when a subcontractor brings a delay/disruption claim and seeks damages from a general contractor varies based on the facts of the situation. However, common hurdles a subcontractor’s claim may face include:

• Notice: failing to provide notice of the delay as required by the parties’ subcontract.
• Non-critical delay: for delay claims, a delay to a subcontractor’s work must be on the subcontractor’s critical path.
• Concurrent delay: for delay claims, the subcontractor may have caused a concurrent delay during the delay period with the delay for which the subcontractor is seeking to recover damages.
• Lien waiver language: a lien waiver a subcontractor executes may contain language barring recovery for any delays that arose before the date of the lien waiver.
• Payment application language: a payment application may contain language barring recovery for any delays that arose before the date of the payment application.
• Change order language: a change order may contain language barring recovery of costs or extension of time arising from a change in work unless such costs or such time extensions are specifically reserved and not resolved by the change order.
• Contract language: as detailed above, a subcontract may dictate what relief, if any, is available when a delay or disruption occurs.

When a general contractor seeks to recover delay damages from a subcontractor, the subcontractor also may have various defenses it can assert depending on the facts of the situation. Common defenses include:

• Contract language: a contract may dictate whether certain types of delays are excusable or whether a subcontractor can be held liable for damages arising from such a delay.
• Non-critical delay: a delay caused by a subcontractor may not be on the general contractor’s critical path.
• Concurrent delay: the general contractor or owner may have caused a concurrent delay with the delay caused by the subcontractor.
• Doctrines of commercial impracticability, frustration of purpose, and/or impossibility of performance: in certain circumstances these doctrines may apply to excuse a subcontractor’s late completion.
• Applicable law defenses: applicable law may provide a defense to the subcontractor.

About the Authors:

Jim Sienicki’s practice involves construction contract preparation, construction law representation and litigation, procurement law and bid protests, general commercial litigation, creditors’ rights and other litigation, alternative dispute resolution (mediator, arbitrator, advocate), and appellate matters. Jim was the head of the firm’s construction practice group for over 15 years, and the firm’s construction litigation practice has been recognized as a National Tier 1 practice for the past nine years by U.S. News and World Report/Best Lawyers. Jim has been named to Best Lawyers in America^® 2003-2024 in the area of Construction Law and Litigation. Jim is often selected as a mediator and arbitrator of construction disputes.

Christian Fernandez is a member of the firm’s commercial litigation practice group. In addition to handling general commercial disputes, Christian’s practice focuses on construction, real estate, and investigations, government enforcement and white collar protection. Christian has experience representing clients throughout the litigation process, including trial. In his construction practice, Christian regularly represents owners, developers, contractors, subcontractors, and suppliers in all aspects of construction disputes, including delay, defect, wrongful termination, change order, mechanic’s liens, and breach of contract disputes.

More information on Snell & Wilmer can be found at swlaw.com