What happens when a construction project is delayed by the owner?
May 27, 2019
By: Samin Bidhendi
The notion of delay in construction projects has been the subject of many discussions and debates. When can an owner be deemed to have delayed a project and what happens next?
Before a contractor can assert that the owner has delayed the project, several boxes must first be ticked. The result not only depends on when the delay occurred, but also when the contractor became (or should have become) aware of the delay and took corrective measures.
What happened, what must happen and what will happen are all contingent on numerous variables. What is eminent, however, is that the contractor cannot “walk off” the project on the account of owner-imposed delays without taking appropriate and reasonable actions that are specified in the contract and are in accordance with applicable laws governing the project.
Alleviating impact costs from this sort of delay, depends on the timing, language and terms and provisions of the signed contract between the contractor and owner. The contractor’s rights and remedies in recovering its impact costs varies significantly depending on the time in the project timeline. The terms of the contract with the owner also governs the contractor’s entitlement and its ability to recover potential impact costs. It must be kept in mind the contractor has a duty to mitigate these impact costs as well.
What happens if an owner delays a project just after tender closing?
When an owner delays a project just after the time of tender or defers the award of the contract and delays the commencement of the work, the contractor is bound to the terms and conditions stipulated in the Form of Tender or any other tender document(s) provided to all bidders. The tender documents typically comprise an “acceptance” period, during which the owner can review and select the bids and award the project based on its prescribed tender terms but most likely to the lowest price bid. Although most tender documents are quite one-sided and only speak to the owner’s rights and remedies in the event of a failure by a bidder, the contractor can rely on the same timelines and the stipulated period of validity of the bid to invalidate the tender agreement. Contractors need to be mindful of any overlap between the proposed period of Work and the Tender Acceptable period specified in the Contract documents.
What happens when an owner delays a project after award?
When an owner delays a project after the issuance of the Notice of Award/Notice to Proceed and signing of the contract documents, the contractor has entered into a new agreement/contract with the owner. The terms and conditions that either party is required to follow, therefore, depend on the provisions of the contract documents and not the tender documents. Once a tender is awarded and a contract is executed, the acceptability or validity of the bid is no longer of question nor the determining factor. Once a contract is signed and a commencement date is agreed upon—whether by a Notice to Proceed or an accepted construction schedule (or perhaps submitted schedule)—both parties must begin and complete the project within the specified or otherwise agreed upon time frames including applicable milestones.
When an owner causes delays to the commencement of the project, the contractor must first establish the cause of the delay. What happens when a construction project is delayed by the owner?If the root cause is that the owner requires changes in the scope of the work, the contractor must follow the provisions of the contract for changes in the work and satisfy any requirement regarding changes, to seek compensation and to amend the contract price for the cost associated with the changes. This also ensures the contractor’s entitlement to any necessary adjustments in the contract time to reflect the additional time required due to the delay imposed by the change in the work. This might also reflect additional time due to the seasonal restrictions of the new or original contract work.
When the nature of an owner-imposed delay is unknown or not associated with changes in the scope of the work, the contractor must follow the contract provisions for delay in the work. The contractor must follow any notice provisions in the contract to ensure entitlement for a time extension and additional compensation. Notices must be submitted in writing and must clearly identify as such. Notices covered within other forms of correspondence may not be deemed acceptable, thereby jeopardizing the contractor’s ability to pursue any rights it may otherwise have under the contract. It is also the responsibility of the contractor to ensure that a discrete notice is submitted for each individual issue.
Notwithstanding the nature of an owner imposed delay, in the event of a dispute between the owner and the contractor, the contractor must refer to the dispute resolution mechanism stipulated in the contract. The dispute resolution process will outline the steps which must be taken by both parties and what the contractor’s rights, remedies and obligations are under the contract. It should be noted that the contractor must continue with the work in dispute until and unless the contractor is instructed otherwise. In some contracts, it is stipulated that the dispute resolution process may only commence once the affected work, or the project as a whole, is completed.
Undoubtedly, the timing of the delay plays a significant role in the extent of the delay and the quantum of damages incurred. However, regardless of when the delay begins, the contractor would be in default of the contract for abandoning work and “walking off” the job if they do not adhere to proper processes and avenues granted for changes, delays and disputes in the contract. If the contractor is deemed in default of the contract, the owner can pursue damages its suffers through legal proceedings or make a claim on the contractor’s performance bond or other performance security it might hold or retain its damages from unpaid contract funds.
The contractor must always read its contract and protect its interest with prompt written notice to the owner of any changes it faces during the course of a project that are different then what was tendered.
Frequently Asked Questions:
1. Can a contractor walk away from a project if the owner delays award?
Most tender forms stipulate a period of validity of the bid. If an owner exceeds the specified time frame in awarding a contract without any negotiations with the bidder and the tender security facility, the contractor can either assume that its bid was unsuccessful, or open negotiations with the owner if possible. However, within the period of validity, contractors are bound to their submitted bid, and refusal to enter into a contract or perform the work may open them up to damages and claim on its bid security.
2. Can a contractor walk away from a project if the owner delays commencement of the work?
No. Once a contractor submits a bid, it enters into an agreement with the owner and forms a binding contract. That contract is further followed by a second agreement upon award of a project. This then forms a second contract between the owner and the contractor. Once either of these contracts are formed, neither the contractor nor the owner can walk away from the agreements without recourse.
3. Can a contractor walk off a job if the owner delays the work for extensive changes?
No. Most contracts include provisions on how to address changes in the work and what measures and remedies are available to the contractor. To reserve its right and ensure entitlement, the contractor is required to follow the contract provisions closely and provide the required written notices and other documentation to preserve its rights. Although some changes may result in a material change to the scope of work, contractors must honour their contracts with the owner and follow the stipulated procedures to terminate the contract effectively. Failure by the contractor to adhere to contract requirements regarding changes or delays in the work could result in default by the contractor, which may ultimately prompt a lawsuit and claim on the contractor’s performance bond.