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Construction Delays and Damages

 

Founding father, Benjamin Franklin, is credited with a number of sayings that still resonate today. One of his most famous – “time is money” – is especially relevant in the world of construction. The construction industry is acutely aware that time delays will cost you. In commercial construction projects with large price tags, these costs can be enormous.

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Construction delays usually end up costing not only the contractor but the owner as well. Contractors pay as workers and equipment sit idle waiting to complete a phase of a project. Owners’ businesses suffer when they are unable to take possession of their property. With large sums of money at stake, it is no surprise that these construction delay disputes often end up in court, where the costs of litigation add even more to the final tab.

To guard against liability for construction delays, both owners and contractors frequently address delays in their bids and contracts. The majority of commercial construction contracts include liquidated damages clauses that assign a penalty for each day a project goes over its target completion date. Without careful drafting, however, even delay provisions and “no liability” clauses can fail to hold up in court.

Technology Construction, Inc. v. City of Kingman

In an Arizona case decided in June 2012, the Arizona Court of Appeals granted delay damages to the contractor, Technology Construction, Inc. (TCI), against the City of Kingman. The Court of Appeals upheld the trial court’s award of $324,933 plus prejudgment interest of $117,785 and post-judgment interest of 10 percent per year even though the City’s contract included a “no liability” provision and lacked a materials escalation clause.

The case, Technology Construction, Inc. (TCI) v. City of Kingman, 229 Ariz. 564, involved construction of a $5.2 million railroad underpass for the City of Kingman. The project was split into two phases, with the first phase slated to begin June 1, 2005. Work was delayed, however, when the City failed to present TCI with a contract until July 7, 2005. The project was pushed back even further when the City did not give TCI a notice to proceed until November 3, 2005. The court determined that TCI was not responsible for any of these delays.

During this time, Mother Nature threw the project another curveball when Hurricane Katrina hit the Gulf Coast in August 2005. The disaster caused the price of oil to skyrocket, which impacted construction projects all over the country – including the City of Kingman’s railroad underpass. Resulting from the increase in oil prices, TCI ended up paying more for asphalt, a material which was utilized prominently in the project. TCI’s initial asphalt bid priced asphalt at $54.10 per ton. However, the company had to pay $85.40 per ton for asphalt by the time the project got underway. This resulted in an overall cost increase of $324,933.

When TCI submitted its request for payment to the City of Kingman, the City refused to pay for the increased costs. As a result, TCI filed a lawsuit for breach of contract under the Arizona Prompt Payment Act. At trial, the court held that the City of Kingman was solely responsible for the construction delays and that the increased materials costs were in no way attributable to TCI.

On appeal, the Court of Appeals found conflicting provisions within the City’s construction contract which further established their liability under that contract. Although the contract contained a “no liability” provision, it also permitted delay damages in the event the owner requested changes or created project delays – both scenarios were supported by the facts in this case. The TCI Court further stated that there was no way TCI could have anticipated the increased cost of materials due to a natural event such as Hurricane Katrina.

Careful Drafting: Anticipating Delays

Any number of events can create both foreseeable and unforeseeable construction delays. The lessons to take away from TCI are twofold. First, courts always construe conflicting contractual provisions in favor of the non-drafting party. The City of Kingman’s contract included both a “no liability” clause and language providing for delay damages. In the presence of a delay damages clause, the Court invalidated the “no liability” clause. Secondly, the City failed to include a force majeure clause in its contract, which could have protected it from increased materials costs related to Hurricane Katrina. Without it, the City was stuck with a substantial increase in construction expenses. Careful contract preparation cannot completely absolve a party from all construction delay liability, but it is a good start.

©2015 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved

This website has been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.