The Pricing of Delay Costs for

Construction Projects

Presented by Bill Haydt

Director, Trauner Consulting Services, Inc.

Meet Your Instructor

Bill Haydt

 Director, Shareholder
 Trauner Consulting Services, Inc.

 Qualified in Federal Court as an Expert

in Construction Scheduling and Delay
Analysis

 10 years of claims experience

 Scheduler, Analyst, Certified NHI

Instructor

 Civil Engineer, Attorney

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 Learning Outcomes

 Key Terms and Their Meaning

 Contract Provisions

 Delay Damages

 Documenting Delays

Problem: Project Delays

 As old as deadlines.

 As project complexity increases, the risk of delay increases.

 Delays carry real and significant costs.

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 Key Scheduling Terms

 Critical Path

 Longest Path

 Float

Critical Path

 Determines the project’s completion date.

 Is the longest continuous sequence of work.

 Is the sequence of work that must be progressed to prevent

delays to the project.

 Exists on every project.

 Is dynamic and can change throughout the course of the project.

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 Critical Path = Longest Path

 The critical path is the longest path of activities in the network.

 The longest path defines the forecast project completion date.

 Only delays to activities on the longest path can delay the project.

 Interim milestones and other events will have their own longest
path.

 Activities on the longest path may have float.

 Software and the “critical path.”

The Critical Path

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 Total Float

 In concept, float is the number of workdays that an activity can be

delayed without causing delay to the completion of the project.
 Be careful: The calculation of float can be overridden by adding
constraints into the schedule. Try to avoid the use of constraints.
 Be aware: Float for activities on the critical path may vary due to
multiple calendars and constraints.

Float Misconceptions

 Float is used to determine the critical path.

 The path with zero total float, or least total float, is the critical
path.

 Float is the number of days an activity can be delayed before it

becomes critical or delays the project.

 Any activity with negative float is critical or contributing to delay in

the project.

 All of the above are false or not always true.

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 Who Owns Float?

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Who Owns Float?

 If contract is silent:
 The project “owns the float.”
 Available for use on a “first come, first served” basis.
 Presumes use of float does not result in additional cost to either party.

 Float ownership clauses:

 Should seek to address what float ownership means in terms of cost.
 For example, if the owner “owns the float,” then has the owner
procured the right to delay any non-critical activities without the risk of
being responsible for additional costs that result from that non-critical
delay?
 Reference to ENR and other articles discussing this topic.

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 Contract Provisions

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Relevant Contract Provisions

 Changes Clauses

 Change Order Pricing Provisions

 Claims Provisions

 Scheduling Provisions

 Time Extension Provisions

 Delay Damage or Cost Provisions

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 Contract Provisions

 Owner-Drafted or Contractor-Drafted Custom Contracts

 Standardized Owner Contracts

 Standard Form Contracts

 AIA Document A201TM – 2007
 ConsensusDOCS1TM 200 – 2007

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TM
AIA Document A201 – 2007

8.3 DELAYS AND EXTENSIONS OF TIME

8.3.1 If the Contractor is delayed at any time in the commencement or
progress of the Work by an act or neglect of the Owner or Architect, or of an
employee of either, or of a separate contractor employed by the Owner; or by
changes ordered in the Work; or by labor disputes, fire, unusual delay in
deliveries, unavoidable casualties or other causes beyond the Contractor’s
control; or by delay authorized by the Owner pending mediation and
arbitration; or by other causes that the Architect determines may justify delay,
then the Contract Time shall be extended by Change Order for such
reasonable time as the Architect may determine.

8.3.2 Claims relating to time shall be made in accordance with applicable

provisions of Article 15.

8.3.3 This Section 8.3 does not preclude recovery of damages for delay by
either party under other provisions of the Contract Documents.
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 TM
AIA Document A201 – 2007

15.1.5 CLAIMS FOR ADDITIONAL TIME

15.1.5.1 If the Contractor wishes to make a Claim for an increase in
the Contract Time, written notice as provided herein shall be given.
The Contractor’s Claim shall include an estimate of cost and of
probable effect of delay on progress of the Work. In the case of a
continuing delay, only one Claim is necessary.

15.1.5.2 If adverse weather conditions are the basis for a Claim for
additional time, such Claim shall be documented by data
substantiating that weather conditions were abnormal for the period of
time, could not have been reasonably anticipated and had an adverse
effect on the scheduled construction.

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TM
ConsensusDOCS 200 – 2007

6.3 DELAYS AND EXTENSIONS OF TIME

6.3.1 If the Contractor is delayed at any time in the commencement or progress
of the Work by any cause beyond the control of the Contractor, the Contractor
shall be entitled to an equitable extension of the Contract Time. Examples of
causes beyond the control of the Contractor include, but are not limited to, the
following: acts or omissions of the Owner, the Architect/Engineer or Others;
changes in the Work or the sequencing of the Work ordered by the Owner, or
arising from decisions of the Owner that impact the time or performance of the
Work; transportation delays not reasonably foreseeable; labor disputes not
involving the Contractor; general labor disputes impacting the Project but not
specifically related to the Worksite; fire; terrorism, epidemics, adverse
governmental actions, unavoidable accidents or circumstances; adverse weather
conditions not reasonably anticipated; encountering Hazardous Materials;
concealed or unknown conditions; delay authorized by the Owner pending
dispute resolution; and suspension by the Owner under Paragraph 11.1. The
Contractor shall submit any requests for equitable extensions of Contract Time in
accordance with the provisions of Article 8.

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 TM
ConsensusDOCS 200 – 2007

6.3 DELAYS AND EXTENSIONS OF TIME

6.3.2 In addition, if the Contractor incurs additional costs as a result of a delay
that is caused by acts or omissions of the Owner, the Architect/Engineer or
Others, changes in the Work or the sequencing of the Work ordered by the
Owner, or arising from decisions of the Owner that impact the time of
performance of the Work, encountering Hazardous Materials, or concealed or
unknown conditions, delay authorized by the Owner pending dispute resolution
or suspension by the Owner under Paragraph 11.1, the Contractor shall be
entitled to an equitable adjustment in the Contract Price subject to Paragraph
6.6.

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Excusable, Non-compensable
Delays

Excusable, non-compensable delays are typically delays that are

not the Contractor’s or the Owner’s fault or responsibility, and that
could not have been foreseen by the Contractor. Typically, the
Owner will not compensate the Contractor for excusable, non-
compensable delays.

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 Examples of Excusable,
Non-compensable Delays

1. Delays due to fires, floods, tornadoes, lightning strikes,

earthquakes

2. Delays due to weather

3. Extraordinary delays in material deliveries

4. Delays due to civil disturbances

5. Delays due to acts of the public enemy

6. Delays due to labor strikes

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Excusable, Compensable Delays

Typically, excusable, compensable delays are delays that are not

the Contractor’s fault or responsibility, and are the Owner’s fault or
responsibility.

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 Examples of Typical Excusable,
Compensable Delays

1. Delays due to changes.

2. Delays due to an Engineer-ordered suspension.

3. Delays due to the neglect of the Owner or its failure to act

in a timely manner.

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1904.6.B Allowable Delay Costs*

1. Extended Field Overhead

2. Idle Labor

3. Escalated Labor

4. Idle Equipment or Equipment Demobilization

5. Material Cost Escalation or Material Storage

(*Taken from Standard Specifications drafted for the Minnesota Department

of Transportation.)

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 Delay Damages

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Delay Damages

 Delay damages can result from both critical path delays and non-
critical delays.

 If a delay is caused by an inefficiency, then the contractor may

also be entitled to inefficiency damages.

 Delay damages are the added costs the contractor, the owner, or
any other participant in the construction project incurs because of
a project delay.

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 Owner Delay Costs

An owner’s delay damages are usually defined and limited by the

liquidated damages provided for in the contract with the contractor.

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Owner Delay Costs

 Many Owners “liquidate” their estimated delay cost into the

contract.

 Rates vary substantially, from a few hundred to $30,000 per day

or more.

 Liquidated damages are a function of being on the project longer.

 If damages are not liquidated, then the owner would typically be

entitled to actual damages.

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 Owner Delay Costs: Actual Costs

 In lieu of liquidated damages, these are the Owner’s time-based

costs due to a delay.

 Can include the cost of continued contract administration and

engineering services, lost sales due to market changes (a big
issue, now), the cost of providing temporary facilities, lost
revenues, and financing costs.

 These can be substantial.

 Owners can also incur non-critical delay damages, but these are
typically not addressed by liquidated damage provisions.

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Other Parties

The delay damages to which other parties will be entitled will be a

function of their contract and the law.

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 Contractor Delay Costs

Only those delay damages that are incurred as the result of a

compensable delay are reimbursable to the contractor.

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Contractor Delay Costs: Labor

 Idle Labor

 Extended Labor

 Labor Cost Escalation

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 Contractor Delay Costs: Idle Labor

For workers idled by a compensable delay, the contractor will

typically be entitled to recover the cost of time the labor is idle:

(Hourly Wage X Idle Hours) + Labor Burden =

Extended Labor Cost

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Contractor Delay Costs:

Extended Labor

For workers who are on the site longer solely because of a

compensable delay, the contractor will typically be entitled to
recover the cost of extended time the worker is on site:

(Hourly Wage X Added Hours) + Labor Burden =

Extended Labor Cost

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 Contractor Delay Costs:
Labor Cost Escalation

A compensable delay can cause a worker to work during a higher-

wage period than the contractor reasonably planned. The resulting
added labor cost is typically compensable:

(Additional Hourly Wage X Hours Expended During Higher-

Wage Period) + Labor Burden =

Added Labor Cost Due to Escalation

(May also apply to labor burden.)

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Contractor Delay Costs:

Equipment

 Idle Equipment

 Extended Equipment

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 Contractor Delay Costs:
Idle Equipment

 Idle Equipment Costs

 Can be significant!
 Pricing guides versus actual costs.

Hourly Equipment Rate x Idle Hours = Idle Equipment Costs

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Contractor Delay Costs:

Extended Equipment

Extended Equipment are added costs incurred due to the extended

period equipment is on site due solely to the delay. Examples may
include things like dewatering pumps, generators, or scaffolding.

Hourly Equipment Rate x Idle Hours =

Extended Equipment Costs

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 Contractor Delay Costs: Material

 Material Cost Escalation

 Storage Costs

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Contractor Delay Costs:

Material Cost Escalation

Material cost escalation may result when a compensable delay

causes a contractor to purchase construction materials at higher
cost. Typically associated with concrete or asphalt, which do not
have a “shelf life.”

Quantity of Materials Purchased X Added Cost per Unit =

Material Cost Escalation

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 Contractor Delay Costs:
Overheads

 Field Office Overhead

 Home Office Overhead

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Contractor Delay Costs:

Field Office Overhead (FOOH)

 Costs incurred to support project, usually field costs.

 Must be time dependent.

 May include job site trailer rental, salaries of project manager and
superintendent, utilities, vehicles, and similar expenses.

 Contract may define as a mark-up.

 Field office costs vary, but can be approximated as 3% to 5% of

the contractor’s bid price. A $75 million, 2-year project, could
have daily costs of approximately $3,000 to $5,000.

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 Contractor Delay Costs:
Home Office Overhead (HOOH)

 Costs incurred to maintain the contractor’s home office operation.

 May include home office lease, executive salaries, estimating and

engineering departments, payroll clerks, etc.

 Recovery of unabsorbed HOOH costs is controversial.

 Track actual costs to a project, if possible.

 Can be estimated using the Eichleay formula, or other formulas.

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Contractor Delay Costs:

Eichleay Formula

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 Documenting Delays

 Provide Notice
 Often required.
 If required, provide it in the specified form.
 Adhere to contract specification requirements.
 If not required, provide it anyway, in writing.

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Documenting Delays

 Contemporaneous Documents
 Often more credible.
 Closer to the event; less memory dependent.
 Fixed, story can’t change.
 Remember to date and sign.
 May appear to be less biased.

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 Documenting Delays

 Schedule Reviews and Approvals

 Contemporaneous
 Identifies problem areas and helps avoid delays.
 Establishes an agreement as to dates and times for both parties.

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Documenting Delays

 Daily Reports, Logs, and Diaries

 Often the best contemporaneous documents.
 Must be prepared daily.
 Must be detailed.
 Should substantiate the writer’s evaluation of performance.
 Date and sign.

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 Acting on Delay Issues

 When to Act on Delay Issues

 Immediately
 Now
 Pronto!
 The ability to mitigate an impact diminishes with time.

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Summary

 The Process for Submitting or Reviewing Delay Claims

 Entitlement
 Impact
 Cost

 Always Consult the Contract

 Change order procedures
 Time extension procedures
 Definition of excusable delays
 Definition of compensable delays
 Definition of allowable costs

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 Summary

 Documenting Impacts
 Approved Baseline Schedule
 Schedule Updates and Revisions
 Provide Timely Notice
 Daily Reports, Logs, & Diaries
 Meeting Minutes

 Categorize and Present Costs

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For More Information:

Please contact Bill Haydt at:

One Penn Center

1617 JFK Blvd. Suite 475
Philadelphia, PA 19103

Bill.Haydt@traunerconsulting.com

www.traunerconsulting.com

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