On a regular basis, Contractors ask me to review their contracts before they sign. In that process, I tend to divide the contract clauses into three categories: 1) the clauses that the contractor needs to be aware of but can live with, 2) the clauses that need modification or clarification, and 3) the clauses that need to be deleted.
Recently, I reviewed a contract for the construction of a very expensive mansion for a wealthy businessman. I was impressed by the number of instances in which time or timing was a factor.
Although the precise wording of this mansion contract—the terms and conditions, special conditions and other “attachments”—had some uniqueness, the types of time-related demands in the contract were not that different from the types in domestic commercial, civil and industrial contracts. If a contractor ignored these provisions or, worse, did not know about them or understand their implications, there would be predictable financial consequences.
This article is not about scheduling. It is about avoiding losses and protecting your project, with a secondary emphasis on the negative effects to the contractor/owner relationship when a job runs late and the owner is not told why.
You might think that the date for starting the work should be obvious. It is not. A standard provision is that the date of commencement of the work is the date of the agreement, which does not necessarily mean the date the agreement is signed. It regularly happens that the signing date does not occur until after the contractor has started work.
Where appropriate, you may want a “reasonable time” or something like 10 days, to start after the date of the agreement to allow for mobilization. You should also ensure, in writing, that the owner has obtained all rights of way and lender approvals to permit the work to start. Double-check the site to ensure that it is in a state of readiness. In one case I had, temporary power (provided by others) had not been connected. In another, the concrete contractor was late in preparing the foundation. In both instances, a time extension was needed immediately upon signing the contract.
All of these preconditions to the actual start of your work are critical because the contract-completion time is usually measured from the date of commencement.
Progress payments by a third party
In some contracts, the lender is expressly named and authorized to issue, even approve, progress payments. You need to clarify and confirm the time allowed for the lender to make payment and spell out what happens when that criterion is not met. Ensure that the lender’s bases for making payment are the same as those specified in your contract, and whether those criteria involve the architect’s approval or the achievement of interim milestones. A bank or other lender might have its own timing and criteria for progress payments, which may be at odds with your understanding.
Change order procedure
Typical change order language permits an owner to order a change by formal, written directive. Keep in mind that this kind of directed change applies both to the physical installation itself as well as the timing of the work. One such clause states, “All such changes in the Work that affect Contract Time or Contract Price shall be formalized in a Change Order.” This provision means that you can, and must, have a change order commemorating a change even if it only affects time. Contractors regularly miss this point.
Taking this clause literally, whenever an owner orders all or part of the work stopped or accelerated, a written change order on contract time should follow, regardless of any cost impact.
Not all contracts expressly contain a constructive change clause, but the American Institute of Architects and the Consensus Documents have this provision. A constructive change arises without a written directive from the owner. It may be caused by site conditions, interferences by other contractors, verbal directions by the owner’s representative, defective technical data, etc.
The contractor has the burden of detecting this kind of change and then sending a written notice. The following is an example of language in one contract: “If the contractor has a ‘claim’ for additional cost or time, he must give the owner written notice within 14 days of the occurrence of the event giving rise to the claim.”
This question of what happens if the contractor fails to give the 10- or 14-day notice has often been litigated. Some contracts are more precise and state that a failure to give written notice within the time specified waives the claim for both time and money.
I have previously written about what constitutes a differing condition. When they are encountered, the AIA standard form contract requires a “prompt” notice to the owner and the architect (not necessarily in writing) before the conditions are disturbed. The Consensus Documents are different and require “immediate written notice.” Depending on the circumstances, “prompt” or “immediate” might be measured in hours, not days.
Shop drawing approvals
In one contract, the architect was required to act on the contractor’s submittals within 10 days of receipt. On the surface, this time period may seem reasonable. However, if the architect took 10 days for every shop drawing submittal, the job would be delayed.
Certainly, it makes sense to put a not-to-exceed limit on approval time in your contract, but consider adding, “or such lesser time as needed to support the schedule.” Any delays in approvals should cause you to send a delay notice within the time required by contract.
Partial releases of lien
I have discussed lien releases in other articles. My purpose here is to note that waiver and release language in these partial lien-release forms may waive any claims you have for a time extension as well as for extra money. Appropriate language should be added, as an exception to each release, for any pending time-extension requests or for delays generally.
First defense to an owner’s delay damages
If a contractor is late completing and has no contractual excuses, he is in breach of contract and liable to the owner for actual costs relating to the delay, or for liquidated damages if that is the remedy in the contract. The contractor’s primary defense to these claims is that he had asked for time extensions. Given the multiplicity of clauses in many contracts affecting time and timing, an after-the-fact schedule analysis showing time impacts may not overcome your lack of “notice” under the appropriate clause.
You might think that the owner is as aware of delay events as you are, but he or she may not be. Keep in mind that, even if the owner knew of the delays—or had reason to know—it may not matter if you did not give timely notice of the reasons for the delay. Timely notice may also keep your relationship with the owner on a positive, businesslike foundation.