In construction contracts, a delay refers to any event or situation that hinders the fulfillment of agreed-upon activity dates between two parties. In the context of modern construction projects, delays have become common due to the need for coordination among permits, personnel, materials, machinery, and activities, as well as the possibility of design changes, all of which occur amidst unpredictable circumstances. As a consequence, completing projects on time and within budget has become an exceedingly challenging task.
The complexity of construction projects demands substantial resources, and delays give rise to significant costs that must be borne by one of the parties involved. In certain cases, these delays lead to tensions and disputes, resulting in the imposition of penalties, changes in project scope, or the development of recovery or acceleration plans.
Delays in construction projects can result in additional costs, which one of the parties involved must bear. These costs may arise from penalties, increased expenses for prolonged work duration, or loss of revenue. Typically, a negotiation period is set to determine responsibility for the delays, which can lead to the implementation of recovery or acceleration plans (depending on the party responsible for the costs), scope changes, or the imposition of penalties.
Types of Construction Delays
Construction delays can be classified into various types, each with its specific implications:
- Critical / Non-Critical Delays: Critical delays significantly impact the project’s completion or important milestones subject to penalties. On the other hand, non-critical delays can escalate to critical if they persist over time or trigger strategic changes.
- Concurrent / Non-Concurrent Delays: Concurrent delays occur simultaneously with other delay events and both affect the project’s critical path, potentially compounding the impact.
- Excusable Non-Compensable, Excusable Compensable, or Non-Excusable Non-Compensable Delays
This classification determines who is responsible for bearing the costs of delays. However, categorizing delays can be complex, often dependent on the methodology and criteria employed by the involved technician.
Extension of Time (EoT)
Contracts typically allow for project completion time extensions when delays are not the contractor’s responsibility. Once a delay becomes evident or is likely to occur, the contractor must provide written notification, identifying the event causing or likely to cause the delay. If the client accepts that the delay is beyond the contractor’s control, a time extension will be granted to adjust the project completion date.
Common events leading to time extensions include:
Changes in project scope instructed by the client.
- Adverse weather conditions.
- Force majeure events such as pandemics, earthquakes, wars, or strikes.
- Delay in receiving timely information from the client.
- Late delivery of materials, components, or areas beyond the contractor’s scope.
Submitting extension of time claims can be intricate, as they often involve multiple delays, some attributable to the contractor and others not. A crucial aspect of making such a claim is providing ample high-quality information that establishes the causal relationship between the event and the resulting delay.
Costs
Direct costs
Direct costs in construction projects are directly tied to the execution of specific work units and are compensated through certification processes. As a result, delays in project completion are not deemed to affect these costs. Typically, direct costs encompass direct labor expenses, materials, and machinery or auxiliary resources. The unique aspect of these costs is their direct association with the project’s execution, rendering them independent of the work’s duration.
In instances of time extension claims, direct costs remain consistent. Only claims related to loss of productivity (disruption) allow for the possibility of seeking increased direct costs.
Indirect costs
Indirect costs in construction projects are not directly associated with the actual execution of the work but are essential for its smooth progress. These costs include expenses related to on-site office setup, communication, warehouses, workshops, and technical and administrative personnel exclusively assigned to the project, among others.
Throughout the project’s development, there are technical and administrative personnel expenditures necessary for organizing and overseeing the work in proportion to the activities.
Determining whether these costs are attributable to the contractor requires conducting a comprehensive delay analysis. This analysis helps identify compensable, excusable, and non-excusable delays, allowing for a thorough evaluation of the associated costs.
General Expenses and profit
General expenses related to project execution typically differ from indirect expenses as they are not directly tied to the work execution but pertain to the overall structure of the company.
These expenses arise from maintaining the company’s essential activities during the project’s execution period. General expenses encompass costs associated with central offices, software licenses, indirect personnel not exclusively dedicated to the project, marketing, and representation expenses, among others.