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IMPLIED OBLIGATIONS AND TIMELY CONTRACT TIME EXTENSIONS & CHANGE ORDERS

Thursday, 19 May 2011
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The verbiage within a typical construction contract specifies the scope of work and the rights and obligations of the stakeholders. The contract documents provide “expressed” provisions within the contracts explicit verbiage, plans and specifications to which the parties agree. However, there are also “implied” obligations which arise from the courts, their applicable system of law and “common practice” which must also be considered.

Implied obligations include;

  • A duty to schedule the work activity
  • A duty to coordinate work activity
  • A duty not to adversely hinder and interfere with work progress
  • A duty to cooperate with stakeholders
  • A duty to mitigate delay and minimize impact
  • A duty to grant reasonable time extensions in an expeditious manner

Quite often, once an Owner has put together the contract “package” and released the contract documents for hard bid or negotiated a contract with a Contractor which includes project duration, perhaps milestones and a liquidated damages clause, the Owner considers his part of the scheduling equation complete. Many Owners stoically take the position that the contract completion date is an absolute, regardless of changes to scope, disruption and delay, force majeure (acts of God) and any other factor which might affect adversely the contract completion date. There are multitudes of variations of “no damages for delay” exculpatory language which is intended to thwart any claim for delay damages, excusable or not.

A large portion of construction contracts, particularly government contracts” include “force majeure” language which allows for excusable delay without compensation due to such factors as:

  • Atypical Severe Weather Delay
  • Earthquakes
  • Epidemics
  • Embargos
  • Fires
  • Floods
  • Quarantine
  • Riots, Insurrections and Acts of War

The ability of the contractor to perform can also be impacted by changes to scope, events and non-events which the contractor could not have reasonably anticipated which cannot be mitigated by reasonable measures to eliminate or minimize impact and cost. Regardless of their source or nature, delay impacts virtually all parties to the contract. Both the contractor and the owner will experience cost increase in extended overhead, materials escalation and other prolongation cost should the contract take longer to complete than planned.

Consequently, all parties to the contract have an implied, even if not explicitly stated, obligation to minimize the detrimental impact of delay to the progress of work activity. This obligation is not just limited to the contract end date. It arises with the Notice to Proceed and the start of construction and continues through each schedule update to the completion of the project.

Delays within a project inevitably fall into one of two categories, compensable and non-compensable. The standard of measure of delay is not limited solely to the contract completion date. Interim delay can and does occur which when mitigated incurs an associated cost. Many Owners ignore this simple fact when faced with interim delay and forced to consider whether to grant a timely time extension and/or maintain the original contract completion date.

Whether loss arises from excusable Acts of God or Owner caused delay, the cause and effect relationship associated with excusable interim delay creates a basis of entitlement for equitable adjustment in the event commensurate time is not granted the contractor. When facing such interim delay and impact, the Owner has an obligation to weigh and decide upon the least costly means of minimizing cost. Simply ignoring the problem is a choice which has its own implications. Such choices typically worsen cost and delay impact, exposing the Owner to liability for the consequence of "forced" or “constructive” acceleration. This can be true even if the project finishes by the planned completion date.

Delaying a decision to grant an excusable time extension in no different than ignoring it. With the passing of time, the opportunity for choice diminishes and the likelihood of receiving a claim for impact and delay increases. The longer it takes to grant a time extension, the less the time extension means to the contractor and consequential cost.

The issue of scheduling and coordination is not simply limited to timely contract extensions. The duty to of all parties to participate in the scheduling and coordination of a project extends to the review and approval of the project CPM baseline schedule as well as monitoring project CPM updates and assessing a “Time Impact Analysis” for changes, events and nonevents occurring over the course of the project.

As with the majority of submittals, the Owner has a duty to review and critique the contract CPM baseline schedule. This review extends to such issues and items as;

  • Is the Critical Path Reasonable?
  • Are key resources clearly defined and properly allocated?
  • Are there unreasonable constraints, open ended logic, negative lags, and other poor scheduling practices included in the CPM schedule model?
  • Are the work activities clearly associated with the various defined work areas?
  • Are soft logic ties between areas of work defined and/or obvious?
  • Is the schedule complete with no open logic ends or predecessors other than NTP and Completion?
  • Does the CPM schedule show an early completion date?

The time tested attitude of waiting till the end of the project to work everything out is fraught with frustration, disputes and expensive litigation. Any Owner who has settled a significant claim or received a large adverse award against it will likely attest to the importance of these items. If not, they are likely to repeat the process again and again until they do.

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