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Understanding Construction Schedule Delays
- By David A. Norfleet, CCC, CFCC
- Published 02/1/2004
- Construction Disputes and Delays
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David A. Norfleet, CCC, CFCC
David has over 25 experience in providing analytical business services to the construction, manufacturing, environmental, and government contracting industries. This experience encompasses all aspects of financial and business management disciplines, cost management, risk analysis and decision-making. David is a Certified Cost Consultant with the Association for the Advancement of Cost Engineering (AACE International), and sits on various review and development committees at the national level. He holds a Bachelor’s of Science degree in Business Management, is qualified as an expert witness, has made numerous conference presentations, and instructed and published articles on related topics. Other memberships include The National Contracts Managment Association, and The American Society of Professional Estimators. David has taken his expertise in estimating, cost analysis, scheduling and planning, and contract administration and applied those skills to solving problems of various complexities.
Mr. Norfleet has the designation "CCC" and "CFCC" after his name. What type of engineer is that? The CCC means "Certified Cost Consultant". This certification is given through the Association for the Advancement of Cost Engineering International (AACEI) and it is accredited by the Council of Engineering and Scientific Specialty Board and the International Engineering Council. There are two designations for certifications and the other is Certified Cost Engineer (CCE). The only difference is whether you have a degree in engineering or not. David's education is in business management so he carries the CCC vs. CCE designator.
The CFCC stands for "Certified Forensic Claims Consultant." This is an advanced, specialty certification designating a demonstrated and verifiable level of expertise as a claims consultant and expert witness. It is also given through AACEI, and Mr. Norfleet served as a member of the task force this certification is responsible for developing.
AACEI is dedicated to the tenets of furthering the concepts of Total Cost Management and Cost Engineering. Total Cost Management is the effective application of professional and technical expertise to plan and control resources, costs, profitability and risk. Simply stated, it is a systematic approach to managing cost throughout the life cycle of any enterprise, program, facility, project, product or service. This is accomplished through the application of cost engineering and cost management principles, proven methodologies and the latest technology in support of the management process.
Total Cost Management is that area of engineering practice where engineering judgment and experience are utilized in the application of scientific principles and techniques to problems of business and program planning; cost estimating; economic and financial analysis; cost engineering; program and project management; planning and scheduling; and cost and schedule performance measurement and change control.
View all articles by David A. Norfleet, CCC, CFCCIt is probable that most construction projects will incur some sort of a delay before they are completed. An even greater probability exists that once a delay has occurred, a claim for financial damages by either the owner or contractor will arise.
Generally speaking, assertion of damages from a delay requires that the contract completion date be extended. A delay may or may not extend the overall schedule for completing the entire scope of the contract. When using a method referred to as Critical Path Scheduling (CPM), delays of an activity off the critical path do not extend the schedule until the entire float (slack time) is consumed.
A delay may merely have the potential for extending the contract completion date. As such, work is accelerated by either a decision by the contractor or a directive from the owner to complete part of the work in less time than was originally planned. If the delay that caused the acceleration was the owner's responsibility, the contractor may have a claim against the owner for increased performance costs. Those costs are typically a result of overtime or shift premiums, material expediting, and labor inefficiencies.
Delays are defined and categorized differently depending on the type, reason and the impact of the delay. It is important to understand these categories in order to determine who may be responsible and whether damages may be sought.
There are three types of delays: 1) Independent delays occur in isolation and do not result from a previous delay. The effect on the total project duration usually can be calculated. 2) Serial delays occur solely as the result of an earlier, unrelated delay to preceding work. For example, winter weather causes the delay in the installation of a HVAC system solely because an earlier labor strike pushed the work into the winter season. 3) Concurrent delays involve two or more events. Taken alone, either of the events would cause a delay in the project schedule, but if either of the delays had not occurred, the schedule would have been impacted by the other delay.1
There are also three categories of delays used in determining delay damages:
1. Inexcusable delays are caused solely by the contractor or its suppliers. The contractor is generally not entitled to relief and must either make up the lost time through acceleration or compensate the owner. This compensation may come about through either liquidated damages or actual damages, providing there is no liquidated damages clause in the contact. Liquidated damages are generally expressed as a daily rate that is based on a forecast of costs the owner is likely to incur in the event of late completion by the contractor.
2. Excusable, non-compensable delays are caused by third parties or incidents beyond the control of both the owner and the contractor. Examples typically include acts of God, unusual weather, strikes, fires, acts of government in its sovereign capacity, etc. In this case, the contractor is normally entitled to a time extension but no compensation for delay damages.
3. Excusable, compensable delays are caused by the owner or the owner's agents. An example of this would be the late release of drawings from the owner's architect.
An excusable, compensable delay usually leads to a schedule extension and exposes the owner to financial damages claimed by the contractor. In this case, the contractor incurs additional indirect costs for both extended field office and home office overhead and unabsorbed home office overhead.
Extended field office and home office overhead costs refer to the additional overhead incurred due to project protraction. Extended overhead is the concept that the owner owes the contractor both additional field office and home office overhead costs for every day of excusable delay.
Additional home office costs have historically been recoverable under certain circumstances with the rationale being as follows: When a contractor submits a fixed-price bid, the contractor reasonably anticipates a certain cash flow from that contract. This expectation is based on the contract price, the progress payment provisions and the scheduled performance period mandated by the owner. The contractor expects the cash-flow to absorb a certain portion of its fixed, home office expenses during the performance period.2
During a delay when work is suspended and the contractor is unable to submit invoices and receive payments, cash flows and corresponding recovery of home office overhead costs are disrupted. This is commonly referred to as an unabsorbed overhead condition. Unabsorbed overhead is the concept that the owner owes the contractor only if an excusable delay results in a substantial decrease in the cash flow and there is no other contract work the contractor can pursue to absorb that overhead cost.
There are two basic steps in addressing a schedule delay claim. First, the duration of the delay must be determined. This takes some scheduling expertise and a good scheduling program since it involves reconstructing certain project baselines such as an as-built schedule or an as-planned schedule. Secondly, the amount of the financial damages must be computed. There are several methods used for computing the damages depending on the specific circumstances of the project, the category of the delay, and the specific type of cost being estimated.
One of these methods, which is probably the most well-known, is the Eichleay Formula. The Eichleay method was accepted by the Armed Services Board of Contract Appeals in 1960 as a method for computing unabsorbed home office overhead costs. The formula provides a daily overhead per diem allocable to the contract and allows the contract recovery of that overhead over the compensable delay period.
In summary, there are many considerations when analyzing and preparing a schedule delay claim and this article does not attempt to present the various methodologies that may be employed in that process. The intent here is to present the definitions recognized within the industry and in the courts and to introduce the reader to some basic concepts. There is a body of knowledge regarding these subjects available through articles and books as well as training classes by qualified experts.
Copyright 2004 Professional Investigative Engineers. All rights reserved.
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1Stumpf, George R., PE. Schedule Delay Analysis. Cost Engineering 42, no. 7 (July 2000)
2Eichleay Revisted-Part I. Construction Claims Monthly, (January 1991). Business Publishers, Inc.