Construction projects have a habit of dragging on beyond the set due date. While some people might view this as the norm, you need to keep in mind that the longer the project runs, the more money is spent. This means that in most cases the funds used for the actual a construction project surpass what was put down in the budget by far. The delays associated with construction fall into various categories. However, they can easily be summed up as excusable, non-excusable, concurrent, compensable, and critical and non-critical delays. The group a delay will fall into will depend on the responsible party, the effect the delay has on the timeline, and whether the delay causes a need for compensation or damages.
Delay Damages Categories
Delay damages in simple terms are the expenses incurred due to the overextension of a project’s duration. In most cases, this involves one party paying out money to the affected party whether it is the contractor paying the owner or vice versa. These damages fall into various categories, and these are; extended field overhead, idle labor, and equipment, escalations, liquidated damages, unabsorbed home office overhead, and additional material storage.
Extended Field Overheads
This is also called site overhead and results from critical project delay. In simple terms, they come about due to an extension of the project duration. They include but are not limited to field office rentals, consumables, utilities and salaries for staff. In this, the owner pays the contractor to cover the cost incurred by the delay.
Idle Labor and Equipment
These damages are just as the name suggests. They occur due to critical and non-critical delays that may be caused by inefficiency, disruption, and suspensions by the owner.
Usually, the contractor is expected to cover the cost of the fluctuation and the increase in the prices for materials, equipment or labor required. However, if this occurs due to interference from the owner, then the owner becomes liable for the damages. This is as long as the delay affected the work operations, whether the project period is extended, or not.
These are damages collected by the owner when the contractor is responsible for the critical project delays. It may be difficult for the owner to determine the impact of the delays, while the project is still ongoing these damages are typically calculated after the project has been completed. In most cases, a lawyer handles this process. Here, factors like escalation costs, lost revenue and cost of owner’s staff are among the things considered.
Unabsorbed Home Office Overheads
These damages are similar to extended field overheads because they both occur due to critical project delays. However, they are not the same. Unabsorbed home office overheads are the costs incurred during the duration of the project like insurance costs, rent for the contractor’s office, salaries of their office staff, corporate taxes, et cetera. However, this cannot be directly charged to the project in question. These damages are calculated using specific formulas, and therefore this work is best done by a professional.
Additional Material Storage Costs
These are also caused by inefficiency or disruptions on the side of the owner and are not limited to critical delays.
COMPONENTS OF DELAY DAMAGES
When one party takes the other to court over construction delays, the responsible party may be asked to pay damages to the affected party. If the owner is the affected party then factors like; additional supervisory expenses, loss of revenue, expenses associated with the delay will be considered.
On the other hand, if the contractor is the affected party, the components of their claim will include; loss of revenue due to the delay, escalation costs, home office overhead costs and any other damages which can be linked to the extension of the project duration.
MINIMIZING DAMAGES FROM CONSTRUCTION DELAYS
Once the contractor or owner has noticed that they are delays which could affect the project duration, some steps can be taken to reduce the associated damages. These include but are not limited to;
- Including clauses in the contract, which will cover issues brought about by schedule delays. For example, you could say that in case of delays caused by the contractors, they will work over the weekend at no charge to the owner.
- Read through your contract before making changes to work schedules because, in most cases, the agreement may have procedure outlined on how to proceed in these eventualities.
- Ensure there is proper communication between all the parties involved. Sometimes, delays may occur due to misinterpretation of information.
- Making changes to the construction design or process. For example, if you have many bespoke projects, these can be reduced, and some aspects standardized, as they tend to take more time.
Construction damages affect and benefit both the contractor and the owner. However, with proper representation and documentation by both parties delays can be quickly identified and this matter resolved.
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