Time is of the Essence Provision in Contract
If a contract specifically states that “time is of the essence” then the party that does not comply with the times set out in the contract can be liable for delay. Alpine Const. Co. v. Water Works Bd. of City of Birmingham, 377 So.2d 954, 956 (Ala. 1979). If there is no provision regarding time being essential to the contract, courts, under principles of equity, can allow a party to be relieved of the strict time constraints of a contract. Id.
Excusable or Non-excusable Delays
Delays may be deemed excusable or non-excusable. The language of the contract determines how the delay will be classified. Contracts often contain provisions that the owner or general contractor must receive written notice when there is an excusable delay. Even if the contract contains no provision regarding written notice, contractors should provide written notice of an excusable delay to the owner.
Some delays, excusable delays, may result in only an extension of time to complete the work rather than resulting in one of the parties having to pay delay damages. These delays are usually caused by acts of God such as severe weather. Other delays may result in an extension of time to complete the work and an adjustment in the contract price. This type of delay would result, for example, when an owner supplies defective plans or specifications, see United States v. Spearin, 248 U.S. 132 (1918), or when the contractor performs additional work. See Davis v. Badders, 95 Ala. 348, 10 So. 422, 426 (1892). If a delay is unexecusable then, the injured party may recover liquidated or actual damages.
In Cove Creek Development Corp. v. APAC Alabama, Inc., 588 So.2d 458 (Ala. 1991) the Alabama Supreme Court considered the finding of a trial court that a 285 day delay was “totally excused” because of (1) interference by another subcontractor, (2) changes to the plans and specifications initiated by the general contractor, and (3) unanticipated adverse weather conditions. The Court found that although all of those conditions may have indeed caused the subcontractor not to complete its work by the deadline, they did not believe that these were excusable delays so as to nullify the liquidated damages provision in the contract. The court was persuaded by a provision in the contract that allowed for an extension of time related to the delays.
Courts may also classify delays as “concurrent.” That is, a delay may result, for example, from actions of both the owner and the contractor. In these situations, Alabama law appears to allow for an apportionment of damages based upon the fault of each party causing the delay. E. C. Ernst, Inc. v. Manhattan Const. Co. of Texas, 551 F.2d 1026, 1038 (5th Cir. 1977) (“we believe that Alabama would permit apportionment of fault”).
Potential Categories of Delay Damages
As set out above some delays are compensable and allow for an owner contractor or subcontract to receive additional compensation or damages. Potential areas for recovery that can be considered depending upon the terms of the contract are as follows:(a) Liquidated damages;(b) Lost rental or use value of completed building; Huntsville ElksClub v. Garrity-Hahn Building Co., 176 Ala. 128, 57 So. 750 (1912);(c) Cost of leasing substitute building; Bevis Const Co. v. Kittrell, 243 Miss.549, 139 So.2d 375 (1962);(d) Additional financing costs on construction or permanent loan; Roanoke Hosp.Ass’n v. Doyle Russell, Inc. 215 Va. 796, 214 S.E. 2d 155 (1975);(e) Actual costs for equipment that was rented(f) Costs for contractor owned equipment – Association of General Contractor’s formula reduced by 50% for idle time. L. L. Hall Const. Co. v. U. S., 379 F.2d 559 (Ct. Cl. 1966).(g) Escalation of wages, rental costs, materials, etc.(h) Additional bonding or insurance costs(i) Profit(j) Overhead – use of the Eichleay formula. Mech-Con v. West, 61 F. 3d 883 (Fed. Cir. 1995).(k) Interest – The law in Alabama allows an argument for interest at 6% per annum for the loss of earning power related to the amount of the claim. See Ala. Code § 8-8-1 (1975); Shook & Fletcher Insulation Co. v. Central Rigging, 684 F.2d 1383 (11th Cir. 1982) (“Alabama law authorizes the award of prejudgment interest on Shook & Fletcher’s claims.”); see also, E. C. Ernst, Inc. v. Koppers Co., Inc., 626 F.2d 324 (3rd Cir. 1980).
Notice of the Delay
If a contractor is seeking additional compensation related to a delay many contracts require notice of the delay. For example, AIA 4.3. may require that the contractor give notice of that within 21 days of when they became aware of the event. AIA 4.3.2.
Documentation of the Weather or other Delaying Events and how they Relate to the Critical Path
In addition to giving the notice a contractor should send documentation that they are entitled to a time extension and extra money due to the delay. For example, the contract may require that the 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. This would include NOAA records showing that rainfall exceeded the norm along with anything else that would show that weather prohibited or affected work. It also could include diaries, notes, letters from subcontractors, pictures showing the condition of job, weather reports, etc.
Ongoing Record Keeping/Pay Applications
As the project moves forward, a contractor should make sure that they keep all records to document the delay or acceleration. The more specific the information the better it will be to show that the delay event occurred, was not foreseeable, was not because of the contractor’s negligence and that it affected the critical path. In addition to what is discussed above, helpful information that will be needed to document the delay is as follows:
- Original Estimates/Take-Off
- Cost records (payroll, materials, subcontractors, suppliers)
- Updated budgets or costs to complete
- Reports on labor productivity
- Applications for Payment
- Architect inspection reports
- Contractors daily project diary
- Any correspondence concerning the delay
- Photographs or videotape
- Records of Meetings
Effect of Release in Payment Application
Finally, note that the payment application may contain a release. The contractor should be careful to state on the payment application that they are also claiming delay damages so that the pay application will not be construed as releasing delay claims. As this pertains to Alabama construction law at least one case has found that a release in the application for payment can bar a delay claim. See Wayne J. Griffin Elec., Inc. v. Dunn Const. Co., 622 So. 2d 314, 317 (Ala. 1993). Another case concluded that a delay claim against a general contractor would not be released by language in a payment application because the general contractor was not named, either specifically or generally, in the text of the release. Allgood Electric Company v. Martin K. Eby Const, Co, Inc., 85 F.3d 1547, 1551-53 (11th Cir. 1996); see also, Hartford Acc. & Indem. Co. v. Cochran Plastering Co., Inc., 2006 WL 73735 (Ala. Civ. App. 2006) (court disagreed with bonding company’s argument that lien waivers and lien release signed by subcontractor barred payment of amounts of more than what was in the lien waiver) .