Why Construction Arbitration is Complex? (VIII)

Delays, suspensions and loss of productivity damage: the most common contractors claims in construction arbitration.

In this new article from the Construction Arbitration series, we analyze the most frequent claims contractors bring against project owners.

1.3  Suspension of the works  

In principle, contracts do not usually authorize the parties to suspend the execution of the work because this would be detrimental to its timely completion.

However, sometimes the client may reserve this right due to various circumstances of a financial nature, timing, etc.

The contractor may also be authorized to suspend the work in the event of non-payment of the price of what has been executed and approved.

Suspensions may also be caused by third parties outside the contractual relationship, such as lack or revocation of licenses, court orders when third parties’ possessory rights are affected, extraordinary adverse weather conditions, strikes, subsoil conditions that were beyond the parties' foresight, etc. 

In these cases, the contractor usually claims the cost overruns that this suspension causes him because he has deployed on site a series of resources of labor, employees, stockpiled materials, contracts with subcontractors and suppliers and, in general, implementation costs on site.

These are the so-called indirect cost claims, i.e. the cost to the contractor of having various resources available on site, without being able to use them and amortize them properly. This may occur as a whole or in part, depending on whether the suspension affects all or part of the work.  

In addition to the cost overruns, the contractor usually also claims an extension of the deadline for the execution of the works so that he cannot be accused of breaching the contract for not having been able to execute the works in their entirety within the agreed deadline. 

1.4   Delay 

It is safe to say that delays are inherent to the construction activity. As we have already pointed out, the complexity of the activities carried out, the multiplicity of parties involved and circumstances beyond the parties' control that may affect the development of a project are frequent causes of delays, even in the best-planned project. 

The execution of the work may be delayed for reasons attributable to the contractor or the client. 

The contractor may be liable for delays due to defective planning or improper coordination of the means he needs or because of delays in the work of other companies, subcontractors and suppliers, which depend exclusively on him and for which he is responsible.

Contracts usually contain penalty clauses in the event of failure to meet the final deadline or, even, in the event of failure to meet certain partial deadlines when this has been agreed and in accordance with the agreed work program or schedule of milestones or phases, whether or not there is a risk that the final deadline will be met. 

However, the delay may also be due to causes attributable to the client for various reasons such as not providing access to the site in due time or in the appropriate conditions of accessibility free of encumbrances and impediments, with the appropriate permits or for not providing in time information that, according to the contract, must be delivered, for example, plans or clarifications to them. Delays in providing a change or modification order may also cause delays in the execution of the work. 

Finally, delays may be due to causes beyond the control of the parties as we have seen in the case of suspensions. Generally, these should be exceptional conditions for which neither party is responsible, including force majeure. In these cases, the possibility of the contractor obtaining any compensation will depend on what has been agreed in the contract, although, generally, she will be entitled to more time, but not to be compensated for any damage. 

Later, when discussing expert evidence in arbitration, we will discuss the various techniques used by experts to determine the causes of delays and their impact on the time frame of the works, especially if there are concurrent delays.  

1.5   Claims for loss of productivity (disruption). 

These are situations in which the contractor suffers losses in productivity in the performance of the work, with respect to what was planned, due to interruptions that are not attributable to the contractor This means that the work is performed less efficiently.

The effect is that the contractor incurs costs or suffers losses that, had such events not occurred, she would not have had to bear. They do not affect compliance with the final deadline but have a negative economic impact on the contractor. 

The causes can be very varied, ranging from inclement weather, to delays or difficulties in accessing the construction site, to delays in the delivery of engineering designs. 

This claim has the same proving problem as delays and the methods of evidencing these costs are also of different kinds. 

1.6   Acceleration costs.  

The client may have the option in the contract to order the contractor to accelerate the execution of the work, i.e. to execute the work faster than originally planned.

This may be due to a delay being incurred by the contractor, in which case he will not be entitled to claim any cost overrun.

But it may be the case that the delay is not the contractor’s fault.

In both cases the contractor will incur higher costs for the acceleration by providing more equipment, machinery, means of all kinds and supplies at rates and in quantities greater than planned. If, as we have pointed out, the order for acceleration is not due to the contractor's fault, the contractor is entitled to be compensated for such cost overruns. 

We have analyzed the claims the contractor most frequently makes to the owner of the work. In the following article we will look at the claims that the owner of the work usually makes to the contractor. 

If you liked this article, share it 👇